Download Bank of America Student Loan Trust 2010

THIS OFFERING MEMORANDUM (THIS “OFFERING MEMORANDUM”) IS BEING PROVIDED ONLY TO (1) ”QUALIFIED INSTITUTIONAL
BUYERS” (“QIBs”) AS DEFINED IN RULE 144A (“RULE 144A”) PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR (2) NON-U.S. PERSONS OUTSIDE THE UNITED STATES OF AMERICA PURSUANT TO THE
REQUIREMENTS OF REGULATION S PROMULGATED UNDER THE SECURITIES ACT (“REGULATION S”). REPRODUCTION OR
FURTHER DISTRIBUTION OF THIS OFFERING MEMORANDUM IS FORBIDDEN. THE OFFERING OF THE NOTES DESCRIBED IN THIS
OFFERING MEMORANDUM WILL NOT BE REGISTERED UNDER THE SECURITIES ACT, ANY UNITED STATES STATE SECURITIES OR
“BLUE SKY” LAWS OR ANY SECURITIES LAWS OF ANY OTHER JURISDICTION.
OFFERING MEMORANDUM
$1,231,596,000
Bank of America Student Loan Trust 2010-1
Issuing Entity
Bank of America Student Loan Securitization Corporation
Depositor
Bank of America, National Association
Sponsor, Master Servicer and Administrator
Student Loan-Backed Notes
On or about July 9, 2010, the trust will issue:
Class
Floating Rate Class A Notes
Principal
$1,231,596,000
Interest Rate
three-month LIBOR plus 0.80%
Maturity
February 25, 2043
The trust will make payments primarily from collections on a pool of FFELP loans. Interest and principal on the notes will be paid quarterly on
the 25th day of each January, April, July and October, beginning in October 2010. Credit enhancement for the notes consists of excess interest
on the trust student loans, overcollateralization and cash on deposit in a reserve account, as described in this offering memorandum. In
addition, the trust will deposit funds, on the closing date, into a capitalized interest account. These funds will be available only for a limited
period of time. The interest rate on the notes will be determined by reference to LIBOR. A description of how LIBOR is determined appears
under “Description of the Notes—Determination of Indices—LIBOR” in this offering memorandum.
Other than as provided in this offering memorandum, no person has been authorized to give any information or to make any representations
other than as contained in this offering memorandum and, if given or made, such information or representations must not be relied upon. This
offering memorandum does not constitute an offer to sell, or a solicitation of an offer to buy, any securities other than the notes, nor an offer of
such securities to any person in any state or other jurisdiction in which it is unlawful to make such offer or solicitation. The delivery of this
offering memorandum at any time does not imply that the information in this offering memorandum is correct as of any time subsequent to its
date.
The notes have not been approved or disapproved by the Securities and Exchange Commission, any state securities commission or
any other regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of this offering or the
accuracy or adequacy of this offering memorandum. Any representation to the contrary is a criminal offense.
The information contained in this offering memorandum is intended for use solely by QIBs as defined in Rule 144A or non-U.S. Persons outside
the United States pursuant to the requirements of Regulation S to whom this document is delivered, and may not be reproduced in whole or in
part.
We are offering the notes through the initial purchasers when and if issued. Application has been made to the Irish Stock Exchange for the
notes to be admitted to the official list and trading on its regulated market.
We are not offering the notes in any state or other jurisdiction where the offer is prohibited.
You should consider carefully the risk factors beginning on page 15 of this offering memorandum.
The notes are asset-backed securities issued by, and are obligations of, the issuing entity, which is a trust. They are not obligations of or
interests in the sponsor, the administrator, the indenture trustee, the eligible lender trustee, the Delaware trustee, the paying agent, the master
servicer, the subservicer, the calculation agent, the depositor, the initial purchasers, or any of their affiliates.
The notes are not guaranteed or insured by the United States or any governmental agency.
____________________________________
Initial Purchaser and Book-Runner
BofA Merrill Lynch
________________________
Initial Purchasers and Co-Managers
Barclays Capital
Credit Suisse
J.P. Morgan
_______________________________
August 3, 2010
RBS
THE INFORMATION IN THIS OFFERING MEMORANDUM, IF CONVEYED PRIOR TO THE TIME
OF YOUR COMMITMENT TO PURCHASE ANY NOTES, SUPERSEDES ANY INFORMATION
CONTAINED IN ANY PRIOR OFFERING MEMORANDUM RELATING TO THE NOTES.
THIS OFFERING MEMORANDUM CONSTITUTES A PROSPECTUS (THE “PROSPECTUS”) FOR
THE PURPOSES OF DIRECTIVE 2003/71/EC (THE “PROSPECTUS DIRECTIVE”).
REFERENCES THROUGHOUT THIS DOCUMENT TO THE “OFFERING MEMORANDUM” SHALL
BE TAKEN TO READ “PROSPECTUS” FOR SUCH PURPOSE. THE PROSPECTUS HAS BEEN
APPROVED BY THE IRISH FINANCIAL REGULATOR AS COMPETENT AUTHORITY UNDER
THE PROSPECTUS DIRECTIVE. THE IRISH FINANCIAL REGULATOR ONLY APPROVES THIS
PROSPECTUS AS MEETING THE REQUIREMENTS IMPOSED UNDER IRISH AND EU LAW
PURSUANT TO THE PROSPECTUS DIRECTIVE. SUCH APPROVAL RELATES ONLY TO THE
NOTES WHICH ARE TO BE ADMITTED TO TRADING ON THE REGULATED MARKET OF THE
IRISH STOCK EXCHANGE OR OTHER REGULATED MARKETS FOR THE PURPOSES OF
DIRECTIVE 2004/39/EC OR WHICH ARE TO BE OFFERED TO THE PUBLIC IN ANY MEMBER
STATE OF THE EUROPEAN ECONOMIC AREA.
THIS PROSPECTUS HAS BEEN PREPARED SOLELY FOR THE PURPOSE OF THE
APPLICATION TO THE IRISH STOCK EXCHANGE FOR THE NOTES TO BE ADMITTED TO THE
OFFICIAL LIST AND TRADING ON ITS REGULATED MARKET AND SHALL NOT BE USED OR
DISTRIBUTED FOR ANY OTHER PURPOSES. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE NOTES. ANY
SUCH OFFER OR SOLICITATION MAY ONLY BE MADE ON THE BASIS OF THE OFFERING
MEMORANDUM DATED JULY 2, 2010 RELATING TO, AND PREPARED IN CONNECTION WITH
THE OFFER AND SALE OF, THE NOTES.
NOTICE TO NEW HAMPSHIRE RESIDENTS: NEITHER THE FACT THAT A REGISTRATION
STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER NEW
HAMPSHIRE REVISED STATUTES ANNOTATED, CHAPTER 421-B (“RSA 421-B”), WITH THE
STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY
DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING.
NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS
AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF
STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR
RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT
IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER,
CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF
THIS PARAGRAPH.NOTICES TO INVESTORS
THE NOTES MAY NOT BE OFFERED OR SOLD TO PERSONS IN THE UNITED KINGDOM IN A
TRANSACTION THAT RESULTS IN AN OFFER TO THE PUBLIC WITHIN THE MEANING OF THE
SECURITIES LAWS OF THE UNITED KINGDOM.
THIS OFFERING OF THE NOTES WILL NOT BE REGISTERED UNDER THE SECURITIES ACT,
ANY UNITED STATES STATE SECURITIES OR “BLUE SKY” LAWS OR ANY SECURITIES
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LAWS OF ANY OTHER JURISDICTION, AND UNLESS THE NOTES ARE REGISTERED MAY
NOT BE OFFERED OR SOLD, EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, ANY APPLICABLE UNITED STATES STATE SECURITIES OR “BLUE SKY”
LAWS OR ANY SECURITIES LAWS OF ANY OTHER JURISDICTION. ACCORDINGLY, THE
NOTES ARE BEING OFFERED AND SOLD BY THE INITIAL PURCHASERS ONLY TO (1) A
LIMITED NUMBER OF QIBS TO WHOM THIS OFFERING MEMORANDUM HAS BEEN
FURNISHED IN RELIANCE ON RULE 144A AND IN ACCORDANCE WITH ANY APPLICABLE
LAWS OF ANY STATE OF THE UNITED STATES, AND (2) NON-U.S. PERSONS OUTSIDE THE
UNITED STATES OF AMERICA PURSUANT TO THE REQUIREMENTS OF REGULATION S.
THERE IS NO UNDERTAKING TO REGISTER THE NOTES UNDER ANY UNITED STATES
STATE OR FEDERAL SECURITIES LAWS OR ANY SECURITIES LAWS OF ANY OTHER
JURISDICTION ON ANY FUTURE DATE.
NO ACTION HAS BEEN OR WILL BE TAKEN BY THE DEPOSITOR OR THE INITIAL
PURCHASERS THAT WOULD PERMIT A PUBLIC OFFERING OF THE NOTES IN ANY
COUNTRY OR JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED.
ACCORDINGLY, THE NOTES MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY,
AND NONE OF THIS OFFERING MEMORANDUM, OR ANY CIRCULAR, OFFERING
MEMORANDUM, FORM OF APPLICATION, ADVERTISEMENT OR OTHER MATERIAL MAY BE
DISTRIBUTED IN OR FROM OR PUBLISHED IN ANY COUNTRY OR JURISDICTION, EXCEPT
UNDER CIRCUMSTANCES THAT WILL RESULT IN COMPLIANCE WITH ANY APPLICABLE
LAWS AND REGULATIONS. PERSONS INTO WHOSE HANDS ALL OR ANY PART OF THIS
OFFERING MEMORANDUM COME ARE REQUIRED BY THE DEPOSITOR AND THE INITIAL
PURCHASERS TO COMPLY WITH ALL APPLICABLE LAWS AND REGULATIONS IN EACH
COUNTRY OR JURISDICTION IN WHICH THEY PURCHASE, SELL OR DELIVER THE NOTES
OR HAVE IN THEIR POSSESSION OR DISTRIBUTE THIS OFFERING MEMORANDUM, IN ALL
CASES AT THEIR OWN EXPENSE.
THE NOTES CANNOT BE RESOLD UNLESS THEY ARE SUBSEQUENTLY REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE. FOR A DESCRIPTION OF CERTAIN
RESTRICTIONS ON RESALES AND TRANSFERS, SEE “DESCRIPTION OF THE NOTES—
TRANSFER RESTRICTIONS” HEREIN.
EACH INITIAL AND SUBSEQUENT PURCHASER OF THE NOTES WILL BE DEEMED BY ITS
ACCEPTANCE OF SUCH NOTES TO HAVE MADE CERTAIN ACKNOWLEDGEMENTS,
REPRESENTATIONS AND AGREEMENTS INTENDED TO RESTRICT THE RESALE OR OTHER
TRANSFER THEREOF AS SET FORTH THEREIN AND DESCRIBED IN THIS OFFERING
MEMORANDUM AND, IN CONNECTION THEREWITH, MAY BE REQUIRED TO PROVIDE
CONFIRMATION OF ITS COMPLIANCE WITH SUCH RESALE AND OTHER TRANSFER
RESTRICTIONS IN CERTAIN CASES. SEE “DESCRIPTION OF THE NOTES—TRANSFER
RESTRICTIONS” HEREIN.
ALTHOUGH APPLICATION HAS BEEN MADE TO ADMIT THE NOTES TO THE IRISH STOCK
EXCHANGE, THERE IS NO MARKET FOR THE NOTES BEING OFFERED HEREBY AND THERE
IS NO ASSURANCE THAT ONE WILL DEVELOP. THE INITIAL PURCHASERS EXPECT, BUT
ARE NOT OBLIGATED, TO MAKE A MARKET IN THE NOTES SOLELY TO FACILITATE
TRADING AMONG QIBS (UNDER RULE 144A) AND/OR NON-U.S. PERSONS (PURSUANT TO
THE REQUIREMENTS OF REGULATION S). THERE IS NO ASSURANCE THAT SUCH MARKET,
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IF DEVELOPED, WILL CONTINUE. RESALES OF THE NOTES MAY BE MADE ONLY
PURSUANT TO A VALID REGISTRATION STATEMENT, PURSUANT TO RULE 144A,
PURSUANT TO REGULATION S OR PURSUANT TO ANOTHER EXEMPTION AVAILABLE
UNDER THE SECURITIES ACT. ALL TRANSFERS OF THE NOTES ARE SUBJECT TO
CERTAIN OTHER RESTRICTIONS DESCRIBED HEREIN. SEE “DESCRIPTION OF THE
NOTES—TRANSFER RESTRICTIONS” HEREIN.
THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER
REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED
UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY
OF THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
THIS OFFERING MEMORANDUM HAS BEEN PREPARED BY THE DEPOSITOR. NONE OF THE
INDENTURE TRUSTEE, THE ELIGIBLE LENDER TRUSTEE, THE DELAWARE TRUSTEE, THE
MASTER SERVICER, THE SUBSERVICER, THE ADMINISTRATOR, THE CALCULATION AGENT
OR THE INITIAL PURCHASERS MAKE ANY REPRESENTATIONS OR WARRANTIES AS TO
THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED IN THIS
OFFERING MEMORANDUM, AND NOTHING HEREIN SHALL BE DEEMED TO CONSTITUTE
SUCH A REPRESENTATION OR WARRANTY BY THE INDENTURE TRUSTEE, THE ELIGIBLE
LENDER TRUSTEE, THE DELAWARE TRUSTEE, THE MASTER SERVICER, THE
SUBSERVICER, THE ADMINISTRATOR, THE CALCULATION AGENT OR THE INITIAL
PURCHASERS. NOTHING HEREIN SHALL BE DEEMED TO CONSTITUTE A PROMISE OR
REPRESENTATION AS TO THE FUTURE PERFORMANCE OF THE DEPOSITOR, THE TRUST,
THE TRUST STUDENT LOANS OR THE NOTES.
IT IS EXPECTED THAT INVESTORS INTERESTED IN PURCHASING THE NOTES WILL
CONDUCT THEIR OWN INDEPENDENT INVESTIGATION OF THE RISKS POSED BY AN
INVESTMENT IN THE NOTES. REPRESENTATIVES OF THE DEPOSITOR, THE MASTER
SERVICER, THE TRUST, THE ADMINISTRATOR AND THE INITIAL PURCHASERS WILL BE
AVAILABLE TO ANSWER QUESTIONS CONCERNING THE NOTES, THE TRUST AND THE
TRUST STUDENT LOANS FROM INVESTORS INTERESTED IN PURCHASING THE NOTES.
REPRESENTATIVES OF THE SUBSERVICER WILL OFFER A PRESENTATION REGARDING
THE SERVICING OF THE TRUST STUDENT LOANS PURSUANT TO AN ADDITIONAL
NOTIFICATION AS PROVIDED BY THE INITIAL PURCHASERS.
THE NOTES DO NOT REPRESENT AN OBLIGATION OF OR INTEREST IN THE SPONSOR, THE
DEPOSITOR, THE INDENTURE TRUSTEE, THE ELIGIBLE LENDER TRUSTEE, THE DELAWARE
TRUSTEE, THE MASTER SERVICER, THE SUBSERVICER, THE ADMINISTRATOR, THE
CALCULATION AGENT OR THE INITIAL PURCHASERS OR ANY OF THEIR RESPECTIVE
AFFILIATES, OTHER THAN THE TRUST.
THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE NOTES OFFERED
HEREBY NOR AN OFFER OF SUCH OFFERED SECURITIES TO ANY PERSON IN ANY STATE
OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY
iv
OF THIS OFFERING MEMORANDUM AT ANY TIME DOES NOT IMPLY THAT INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS OFFERING MEMORANDUM IS INTENDED FOR USE SOLELY BY THE QIBS (UNDER
RULE 144A) OR NON-U.S. PERSONS (PURSUANT TO THE REQUIREMENTS OF REGULATION
S) TO WHOM THIS OFFERING MEMORANDUM IS DELIVERED FOR USE SOLELY IN
CONNECTION WITH AN OFFERING EXEMPT FROM REGISTRATION UNDER THE SECURITIES
ACT AND ANY APPLICABLE UNITED STATES STATE SECURITIES OR “BLUE SKY” LAWS,
AND MAY NOT BE REPRODUCED OR USED, IN WHOLE OR IN PART, FOR ANY OTHER
PURPOSE OR FURNISHED TO ANY OTHER PERSON.
EACH PROSPECTIVE INVESTOR (AND EACH EMPLOYEE, REPRESENTATIVE, OR OTHER
AGENT OF SUCH PROSPECTIVE INVESTOR) MAY DISCLOSE TO ANY AND ALL PERSONS,
WITHOUT LIMITATIONS OF ANY KIND THE TAX TREATMENT AND TAX STRUCTURE OF THE
TRANSACTION AND ALL MATERIALS OF ANY KIND (INCLUDING OPINIONS OR OTHER TAX
ANALYSES) THAT ARE PROVIDED TO THE PROSPECTIVE INVESTOR RELATING TO SUCH
TAX TREATMENT AND TAX STRUCTURE. ANY SUCH DISCLOSURE OF THE TAX
TREATMENT, TAX STRUCTURE AND OTHER TAX-RELATED MATERIALS SHALL NOT BE
MADE FOR THE PURPOSE OF OFFERING TO SELL THE NOTES OFFERED HEREBY OR
SOLICITING AN OFFER TO PURCHASE ANY SUCH NOTES. FOR PURPOSES OF THIS
PARAGRAPH, THE TERMS “TAX TREATMENT” AND “TAX STRUCTURE” HAVE THE
MEANING GIVEN TO SUCH TERMS UNDER TREASURY REGULATION SECTION 1.6011-4(c).
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS OFFERING
MEMORANDUM OR ANY PRIOR OR SUBSEQUENT COMMUNICATIONS FROM THE
DEPOSITOR, THE SPONSOR, THE ADMINISTRATOR, THE CALCULATION AGENT, THE
ELIGIBLE LENDER TRUSTEE, THE INDENTURE TRUSTEE, THE DELAWARE TRUSTEE, THE
MASTER SERVICER, THE SUBSERVICER, THE INITIAL PURCHASERS OR ANY OF THEIR
OFFICERS, EMPLOYEES OR AGENTS AS INVESTMENT, LEGAL, ACCOUNTING,
REGULATORY OR TAX ADVICE. PRIOR TO PURCHASING ANY NOTES, A PROSPECTIVE
PURCHASER SHOULD CONSULT WITH ITS OWN LEGAL, BUSINESS, ACCOUNTING,
REGULATORY AND TAX ADVISERS TO DETERMINE THE APPROPRIATENESS AND
CONSEQUENCES OF AN INVESTMENT IN THE NOTES IN ITS SPECIFIC CIRCUMSTANCES
AND ARRIVE AT AN INDEPENDENT EVALUATION OF THE INVESTMENT BASED, AMONG
OTHER THINGS, ON ITS OWN VIEWS AS TO THE RISKS ASSOCIATED WITH THE TRUST
STUDENT LOANS, WHICH WILL AFFECT THE RETURN ON ITS INVESTMENT IN THE NOTES.
The depositor has taken all reasonable care to confirm that the information contained in this
offering memorandum is true and accurate in all material respects. In relation to the
depositor, the sponsor, the trust, the administrator, the master servicer, the trust student
loans and the notes, the depositor accepts full responsibility for the accuracy of the
information contained in this offering memorandum. Having made all reasonable inquiries,
the depositor confirms that, to the best of its knowledge, there have not been omitted material
facts the omission of which would make misleading any statements of fact or opinion
contained in this offering memorandum.
In connection with the proposed admission of the notes to the official list of the Irish Stock
Exchange and trading on its regulated market, the depositor accepts responsibility for the
information contained in this offering memorandum. To the best knowledge of the depositor,
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having taken all reasonable care to ensure that such is the case, the information contained in
this offering memorandum is in accordance with the facts and does not omit anything likely to
affect the import of such information.
IRS CIRCULAR 230 NOTICE
THIS OFFERING MEMORANDUM IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT
BE USED, FOR THE PURPOSE OF AVOIDING U.S. FEDERAL, STATE OR LOCAL TAX
PENALTIES. THIS OFFERING MEMORANDUM HAS BEEN WRITTEN AND PROVIDED BY THE
DEPOSITOR IN CONNECTION WITH THE PROMOTION OR MARKETING BY THE DEPOSITOR
AND/OR THE INITIAL PURCHASERS OF THE TRANSACTIONS OR MATTERS ADDRESSED IN
THIS OFFERING MEMORANDUM. PROSPECTIVE INVESTORS SHOULD SEEK ADVICE BASED
ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
vi
TABLE OF CONTENTS
Offering Memorandum
Page
Page
Summary of Terms............................................ 1
Issuing Entity .............................................. 1
Depositor .................................................... 1
Sponsor, Master Servicer and
Administrator ........................................ 1
Subservicer................................................. 2
Calculation Agent........................................ 2
Indenture Trustee, Paying Agent and
Eligible Lender Trustee ........................ 2
Delaware Trustee ....................................... 2
The Notes ................................................... 2
Dates .......................................................... 2
Information About the Notes....................... 3
Information About the Trust ........................ 4
Formation of the Trust.......................... 4
Trust Assets ......................................... 5
Administration of the Trust.......................... 8
Distributions ......................................... 8
Transfer of the Assets to the Trust..... 10
Servicing of the Assets....................... 10
Compensation of the Master
Servicer........................................ 11
Termination of the Trust ........................... 11
Optional Purchase.............................. 12
Residual Certificateholder ........................ 12
Tax Considerations................................... 13
ERISA Considerations.............................. 13
Ratings of the Notes ................................. 13
Listing Information .................................... 14
Risk Factors.............................................. 14
Identification Numbers.............................. 14
Risk Factors .................................................... 15
Because the Notes May Not Provide
Regular or Predictable Payments,
You May Not Receive the Return on
Your Investment That You Expected . 15
The Notes Are Not Suitable Investments
for All Investors .................................. 15
You Will Bear Prepayment and
Extension Risk Due to Actions
Taken by Individual Borrowers and
Other Variables Beyond Our Control . 15
The Trust Will Have Limited Assets
From Which to Make Payments on
the Notes, Which May Result in
Losses ................................................ 16
Certain Credit and Liquidity
Enhancement Features Are Limited
and if They Are Depleted, There
May Be Shortfalls in Distributions to
Noteholders.........................................17
Your Ability to Transfer the Notes May
Be Limited ...........................................17
Current Illiquid Market Conditions May
Continue in the Future ........................18
The Characteristics of the Statistical
Trust Student Loans as of the
Statistical Cutoff Date May Differ
From the Pool of Trust Student
Loans Sold to the Issuing Entity on
the Closing Date .................................18
Your Notes Will Have Basis Risk, Which
Could Compromise the Trust’s
Ability to Pay Principal and Interest
on Your Notes .....................................19
You May Incur Losses or Delays in
Payments on Your Notes if
Borrowers Default on the Trust
Student Loans.....................................20
If a Guarantor of the Trust Student
Loans Experiences Financial
Deterioration or Failure, You May
Suffer Delays in Payment or Losses
on Your Notes .....................................20
The U.S. Department of Education’s
Failure to Make Reinsurance
Payments May Negatively Affect the
Timely Payment of Principal and
Interest on Your Notes........................21
Payment Offsets by FFELP Loan
Guarantors or the U.S. Department
of Education Could Prevent the
Trust from Paying You the Full
Amount of the Principal and Interest
Due on Your Notes .............................22
You May Be Unable to Reinvest
Principal Payments at the Yield You
Earn on the Notes...............................23
A Failure to Comply with Student Loan
Origination and Servicing
Procedures Could Jeopardize
Guarantor, Interest Subsidy and
Special Allowance Payments on the
Trust Student Loans, Which May
Result in Delays in Payment or
Losses on Your Notes ........................24
The Inability of the Depositor or the
Master Servicer to Meet Its
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Repurchase Obligation May Result
in Losses on Your Notes .................... 24
BANA’s Suspension of Origination of
New FFELP Loans and BANA’s
Subsequent Inability to Meet its
Substitution Obligation May Cause
You to Bear Prepayment Risk............ 25
The Notes May Be Repaid Early Due to
an Exercise of the Purchase Option.
If This Happens, Your Yield May Be
Affected and You Will Bear
Reinvestment Risk ............................. 25
FDIC Receivership or Conservatorship
of BANA Could Result in Delays in
Payments or Losses on Your Notes .. 26
A Master Servicer or Subservicer
Default May Result in Additional
Costs, Increased Servicing Fees by
a Substitute Master Servicer or a
Diminution in Servicing
Performance, Any of Which May
Have an Adverse Effect on Your
Notes .................................................. 28
The Bankruptcy of the Subservicer
Could Delay the Appointment of a
Successor Subservicer or Reduce
Payments on Your Notes ................... 29
Timely Payments on Your Notes
Depend in Part on the Servicing
Ability of the Subservicer.................... 29
The Trust’s Inclusion of Subserviced
Trust Student Loans May Make It
More Difficult to Find a Successor
Master Servicer .................................. 30
The Indenture Trustee May Have
Difficulty Liquidating Trust Student
Loans After an Event of Default ......... 30
The Enactment of the Health Care and
Education Reconciliation Act of
2010 and Any Other Changes in
Law May Adversely Affect the Trust
Student Loans, the Guarantors, the
Depositor and BANA and,
Accordingly, Adversely Affect Your
Notes .................................................. 30
The Use of Master Promissory Notes
May Compromise the Indenture
Trustee’s Security Interest in the
Trust Student Loans........................... 31
Certain Actions Can Be Taken Without
Noteholder Approval .......................... 32
Limitations of Ratings; Withdrawal or
Downgrade of Initial Ratings May
Decrease the Prices of Your Notes;
Unsolicited Ratings ............................ 33
Consumer Protection Laws May Affect
Enforceability of the Trust Student
Loans ..................................................33
The Trust May Be Affected by Delayed
Payments From Borrowers Called to
Active Military Service.........................34
Defined Terms .................................................35
Formation of the Trust .....................................35
The Trust ...................................................35
Capitalization of the Trust..........................36
Eligible Lender Trustee and Interim
Eligible Lender Trustee.......................37
Indenture Trustee and Paying Agent ........38
Delaware Trustee ......................................39
The Depositor ..................................................39
The Seller, Sponsor, Master Servicer and
Administrator .............................................40
General......................................................40
BANA’s Student Loan Financing
Business .............................................41
General ...............................................41
Loan Originations................................41
Origination Process ............................43
Servicing .............................................43
Consolidation/Repayment Programs..43
Default Management ..........................44
Incentive Programs.............................44
Use of Proceeds ..............................................45
The Trust Student Loan Pool...........................46
General......................................................46
Eligible Trust Student Loans .....................46
FFELP Delinquencies, Defaults, Claims
and Net Losses ...................................47
Characteristics of the Statistical Trust
Student Loans.....................................49
Insurance of Trust Student Loans;
Guarantors of Trust Student Loans ....50
Cure Period for Trust Student Loans ........51
Consolidation of Federal Benefit Billings
and Receipts and Guarantor Claims
with Other Trusts ................................52
Third-Party Originators of FFELP Loans...53
Termination of the Trust ............................53
Transfer and Servicing Agreements ................54
General......................................................54
Purchase of Student Loans by the
Depositor; Representations and
Warranties of the Seller ......................54
Sale of Student Loans to the Trust;
Representations and Warranties of
the Depositor.......................................55
Custodian of Promissory Notes.................56
Amendments to Transfer and Servicing
Agreements.........................................56
Servicing and Administration ...........................56
General......................................................56
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The Master Servicing Agreement and
the Subservicing Agreement.............. 57
Servicing Procedures ............................... 58
Payments on Trust Student Loans ........... 60
Master Servicer Covenants ...................... 60
Servicing Compensation........................... 62
Evidence as to Compliance ...................... 62
Matters Regarding the Master Servicer.... 62
Servicer Default ........................................ 63
Rights Upon Master Servicer Default ....... 64
Waiver of Past Defaults ............................ 64
Custody of the Student Loan Promissory
Notes .................................................. 65
Description of Subservicer........................ 65
The Administration Agreement and the
Calculation Agent Agreement ............ 65
Administrator Default ................................ 67
Rights Upon Administrator Default ........... 67
Statements to Indenture Trustee and
Trust ................................................... 68
Evidence as to Compliance ...................... 69
Description of Calculation Agent .............. 69
Description of the Notes.................................. 70
The Indenture ........................................... 70
Insolvency Events..................................... 74
Form and Denomination of the Notes ...... 75
Book-Entry Registration ..................... 75
Exchanges Between Regulation S
Global Notes and Rule 144A
Global Notes ................................ 79
Definitive Notes .................................. 80
The Notes ................................................. 81
Pool Factors.............................................. 82
Notice of Interest Rate.............................. 82
Determination of Indices........................... 82
Trust Accounts and Eligible Investments . 84
Distributions .............................................. 85
Priority of Payments Following Certain
Events of Default Under the
Indenture ............................................ 87
Voting Rights and Remedies .................... 88
Capitalized Interest Account..................... 88
Credit Enhancement................................. 88
Administration Fees.................................. 89
Servicing Compensation........................... 90
Trust Fees................................................. 90
Transfer Restrictions ................................ 91
Optional Purchase .................................... 96
Prepayments, Extensions, Weighted
Average Lives and Expected Maturities
of the Notes ...............................................97
Certain Legal Aspects of the Trust Student
Loans.........................................................98
Transfer of Trust Student Loans ...............98
Consumer Protection Laws .....................100
Loan Origination and Servicing
Procedures Applicable to Trust
Student Loans...................................100
Certain Matters Relating to Bankruptcy ..101
Student Loans Generally Not Subject to
Discharge in Bankruptcy...................103
U.S. Federal Income Tax Consequences......103
Tax Characterization of the Trust............105
Tax Consequences to Holders of Notes
in General .........................................105
State Tax Consequences ..............................110
ERISA Considerations ...................................110
Accounting Considerations ............................113
Reports to Noteholders..................................113
Notice to Canadian Residents .......................114
Resale Restrictions .................................114
Representations of Purchasers...............114
Rights of Action—Ontario Purchasers
Only...................................................115
Enforcement of Legal Rights ...................115
Taxation and Eligibility for Investment.....115
Notice to Investors .........................................115
Listing Information..........................................116
Plan of Distribution.........................................118
Ratings of the Notes ......................................118
Legal Matters .................................................119
Glossary For Offering Memorandum .............120
Annex A: Characteristics of the Statistical
Trust Student Loan Pool.......................... A-1
Annex B: Prepayments, Extensions,
Weighted Average Lives and Expected
Maturities of the Notes ............................ B-1
Annex C: Federal Family Education Loan
Program................................................... C-1
Annex D: Global Clearance, Settlement and
Tax Documentation Procedures.............. D-1
ix
Application has been made to the Irish Stock Exchange for the notes to be
admitted to the official list and trading on its regulated market. We cannot assure you
that the application will be granted. This offering memorandum may be used only for
the purposes for which it has been published.
The information in this offering memorandum, if conveyed prior to the time of
your commitment to purchase any notes, supersedes in its entirety any information
contained in any prior disclosure or statistical information relating to the notes that you
may have received. You should rely only on the information in this offering
memorandum in making your investment decision.
FORWARD-LOOKING STATEMENTS
Certain statements contained in or incorporated by reference in this offering
memorandum consist of forward-looking statements relating to future economic
performance or projections and other financial items. These statements can be
identified by the use of forward-looking words such as “may,” “will,” “should,” “expects,”
“believes,” “anticipates,” “estimates,” or other comparable words. Forward-looking
statements are subject to a variety of risks and uncertainties that could cause actual
results to differ from the projected results. Those risks and uncertainties include,
among others, general economic and business conditions, regulatory initiatives and
compliance with governmental regulations, customer preferences and various other
matters, many of which are beyond our control. Because we cannot predict the future,
what actually happens may be very different from what is contained in our forwardlooking statements.
x
xi
PAYMENT FLOWS
AND DELIVERIES
Loans for $
Bank of
America
Student Loan
Securitization
Corporation
$ for Loans
Seller
$ for Loans
$ for Notes
Notes for $
Loans for $
Bank of
America
Student Loan
Trust 2010-1
(Issuing Entity)
Legal
Title to
Loans
Interim Eligible
Lender Trustee
(for Bank of
America
Student Loan
Securitization
Corporation)
Initial
Purchasers
Distributions
of $ (on behalf
of Investors)
$ for Notes
Notes for $
Legal
Title to
Loans
Distributions of
$ to Investors
Investors
Indenture
Trustee
xii
Eligible
Lender
Trustee
(for the Trust)
SUMMARY OF TERMS
This summary highlights selected information about the notes. It does not
contain all of the information that you might find important in making your investment
decision. It provides only an overview to aid your understanding and is qualified by the
full description of the information contained in this offering memorandum. You should
read the full description of this information appearing elsewhere in this document to
understand all of the terms of the offering of the notes.
Issuing Entity
Sponsor, Master Servicer and
Administrator
Bank of America Student Loan Trust
2010-1, which is a special purpose
Delaware statutory trust. It was formed
on April 22, 2010 under a short-form
trust agreement dated as of April 22,
2010. The short-form trust agreement
will be amended and restated on the
closing date pursuant to an amended
and restated trust agreement to be
dated the closing date among the
depositor, the eligible lender trustee, the
Delaware trustee and the indenture
trustee. Its principal address is in care
of Deutsche Bank Trust Company
Americas, 60 Wall Street, 26th Floor,
New York, New York 10005. We
sometimes refer to the issuing entity as
the “trust.”
Bank of America, National Association,
which is a national banking association
and a wholly-owned subsidiary of Bank
of America Corporation.
Its principal address is Bank of America
Corporate Center, 100 N. Tryon Street,
Charlotte, North Carolina 28255, Mail
Code: NC1-007-06-82. We sometimes
refer to Bank of America, National
Association as “BANA.” BANA is the
parent company of the depositor.
In its capacity as master servicer, BANA
will act as master servicer with respect
to the trust student loans and will
arrange for and oversee performance of
its servicing obligations by ACS
Education Services, Inc. (“ACS”).
Depositor
Bank of America Student Loan
Securitization Corporation, which is a
Delaware corporation. Bank of America
Student Loan Securitization Corporation
is a direct, wholly-owned special
purpose, bankruptcy remote subsidiary
of Bank of America, National
Association.
In its capacity as administrator under the
administration agreement, BANA will
provide certain administrative and
ministerial services for the trust
including, among other things, preparing
or obtaining certain documents, reports,
filings, instruments, certificates, opinions
and notices required under the
transaction documents.
Its principal address is Bank of America
Corporate Center, 100 N. Tryon Street,
Charlotte, North Carolina 28255, Mail
Code: NC1-007-06-82.
BANA will enter into a calculation agent
agreement with ACS Asset
Management Group, Inc. (“ACS-AMG”)
pursuant to which ACS-AMG will
1
Deutsche Bank Trust Company
Americas is also the eligible lender
trustee under the trust agreement and
will hold legal title to the trust student
loans on behalf of the trust.
assume, as calculation agent,
responsibility for calculating the deposits
into the various trust accounts and
calculating the deposits and distributions
described under “Description of the
Notes—Distributions—Quarterly
Distributions from the Collection
Account” in this offering memorandum.
Delaware Trustee
Wilmington Trust Company, which is a
Delaware banking corporation. The
Delaware trustee will act in the
capacities required under the Delaware
Statutory Trust Act and under the trust
agreement. Its principal Delaware
address is Rodney Square North, 1100
North Market Street, Wilmington,
Delaware 19890.
See “Servicing and Administration—
Administration Agreement” in this
offering memorandum.
Subservicer
ACS Education Services, Inc., which is
a Delaware corporation. Its principal
address is One World Trade Center,
Suite 2200, Long Beach, California
90831.
The Notes
The trust will issue the notes under the
indenture. The trust is offering the
Floating Rate Class A Student
Loan-Backed Notes, in the amount of
$1,231,596,000, which are debt
obligations of the trust.
Calculation Agent
ACS Asset Management Group, Inc.,
which is an Oregon corporation. Its
principal address is One World Trade
Center, Suite 2200, Long Beach,
California 90831.
Dates
Indenture Trustee, Paying Agent and
Eligible Lender Trustee
The closing date for this offering will be
July 9, 2010.
Deutsche Bank Trust Company
Americas, which is a New York banking
corporation. Its principal trust address is
60 Wall Street, 26th Floor, New York,
New York 10005.
The information about the statistical
trust student loans in this offering
memorandum is calculated and
presented as of June 1, 2010. We refer
to this date as the statistical cutoff date.
Under the indenture to be dated as of
the closing date, Deutsche Bank Trust
Company Americas will act as indenture
trustee for the benefit of and to protect
the interests of the noteholders. The
indenture trustee will authenticate the
notes, act as paying agent for the notes,
and establish various accounts of the
trust.
The trust will be entitled to receive all
collections and proceeds on the trust
student loans on or after the closing
date, which will be the cutoff date for the
pool of trust student loans sold to the
trust.
A distribution date for the notes will
occur on the 25th day of each January,
April, July and October, beginning in
2
The notes will bear an annual interest
rate equal to the sum of three-month
LIBOR (except for the first accrual
period) and 0.80%.
October 2010 or, if any such day is not a
business day, the distribution date will
be the next business day.
Interest and principal will be payable to
holders of record as of the close of
business on the record date, which is
the day before the related distribution
date.
LIBOR for the first accrual period will be
determined by the following formula:
x + [13/28 * (y-x)]
A monthly servicer payment date will be
the 25th calendar day of each month or
the next succeeding business day if
such 25th day is not a business day,
beginning in August 2010.
where:
A collection period is the three-month
period ending on the last day of March,
June, September and December, in
each case for the distribution date in the
following month. However, the first
collection period will begin on the
closing date and end on September 30,
2010.
The indenture trustee will determine
LIBOR as specified under “Description
of the Notes—Determination of
Indices—LIBOR” in this offering
memorandum. The administrator will
cause the calculation agent to calculate
the amount of interest payable on the
notes based on the actual number of
days elapsed in each accrual period
divided by 360.
x = three-month LIBOR, and
y = four-month LIBOR.
Information About the Notes
Principal Payments. Principal will be
payable to the noteholders on each
distribution date in an amount generally
equal to the principal distribution amount
for that distribution date until their
principal balance is reduced to zero.
The notes will receive payments
primarily from collections on the trust
student loans acquired by the trust on
the closing date.
Interest Payments. Interest will
generally accrue on the outstanding
principal balance of the notes during
three-month accrual periods and will be
paid out of available funds on each
distribution date.
In addition, on each distribution date,
the amount of available funds remaining
after the payments described in the 1st
through 7th items in the chart on page 9
of this offering memorandum will be
distributed to the noteholders as
accelerated payments of note principal.
Generally, each accrual period for the
notes begins on a distribution date and
ends on the day before the next
distribution date. The first accrual
period for the notes, however, will begin
on the closing date and end on October
24, 2010, the day before the first
distribution date.
See “Description of the Notes—
Distributions” in this offering
memorandum for a more detailed
description of principal payments. See
also “Description of the Notes—Priority
of Payments Following Certain Events
3
Security for the Notes. The notes will be
secured by the assets of the trust, which
consist primarily of the trust student
loans.
of Default Under the Indenture” in this
offering memorandum for a description
of the cash flows on each distribution
date following the occurrence of an
event of default and the acceleration of
the maturity of the notes.
Overcollateralization. On the closing
date, the sum of the initial pool balance
of the trust and the initial deposits into
the capitalized interest account and the
reserve account will be
approximately 108.34% of the
aggregate principal balance of the
notes. Overcollateralization is intended
to provide credit enhancement for the
notes. In general, the amount of
overcollateralization is intended to equal
the product of (a) the
overcollateralization percentage stated
above minus 100% and (b) the then
current aggregate principal balance of
the notes. The amount of
overcollateralization will vary from time
to time depending on the rate and timing
of principal payments on the trust
student loans, capitalization of interest,
certain borrower fees and the incurrence
of losses on the trust student loans.
See “Description of the Notes—Credit
Enhancement—Overcollateralization” in
this offering memorandum.
Maturity Date. The notes will mature no
later than February 25, 2043; however,
the actual maturity of the notes could
occur earlier if, for example:
•
there are prepayments on the trust
student loans; or
•
the master servicer exercises its
option to purchase all remaining trust
student loans, which will not occur
until the first distribution date on
which the pool balance is 10% or
less of the initial pool balance.
Prepayments, Extensions, Weighted
Average Lives and Expected Maturities
of the Notes. The projected weighted
average life, expected maturity date and
percentages of remaining principal
balance of the notes under various
assumed prepayment scenarios may be
found under “Prepayments, Extensions,
Weighted Average Lives and Expected
Maturities of the Notes” in Annex B
attached to this offering memorandum.
Information About the Trust
Formation of the Trust
Denominations. The notes will be
available for purchase in minimum
denominations of $100,000 and
additional increments of $1,000. The
notes will be available only in book-entry
form through The Depository Trust
Company, Clearstream, Luxembourg
and the Euroclear System. You will not
receive a certificate representing your
notes except in very limited
circumstances.
The trust is a Delaware statutory trust.
The only activities of the trust are
acquiring, owning and managing the
trust student loans and the other assets
of the trust, issuing and making
payments on the notes, and other
related activities. See “Formation of the
Trust—The Trust” in this offering
memorandum.
4
a consolidation loan. See “Annex C—
Federal Family Education Loan
Program” attached to this offering
memorandum for a description of each
type of FFELP loan.
The depositor will acquire the trust
student loans from BANA on the closing
date under the purchase agreement and
will subsequently sell them to the trust
on the closing date under the sale
agreement. The sale agreement and
the purchase agreement will each be
dated as of the closing date.
As of the statistical cutoff date, the
statistical trust student loans comprised
the trust student loan pool, and had a
pool balance of approximately
$1,289,117,766.67. Any reference
herein to the statistical trust student
loans and/or the statistical pool balance
also refers to the trust student loans and
the trust student loan pool balance.
Deutsche Bank Trust Company
Americas, as interim eligible lender
trustee, will hold legal title to the trust
student loans for the depositor under an
interim trust agreement prior to the
transfer of the trust student loans to the
eligible lender trustee on behalf of the
trust.
The statistical information presented in
this offering memorandum is based on a
statistical pool of trust student loans as
of the statistical cutoff date. The trust
student loans sold to the issuing entity
on the closing date will be selected from
the statistical pool. The weighted
average characteristics of the trust
student loans sold to the issuing entity
on the closing date may not be identical
to, but will not materially differ from, the
weighted average characteristics of the
statistical trust student loans in “Annex
A—Characteristics of the Statistical
Trust Student Loan Pool” attached to
this offering memorandum.
Trust Assets
The assets of the trust will include:
•
the trust student loans;
•
collections and other payments on
the trust student loans; and
•
funds it will hold from time to time in
its trust accounts, including a
collection account, a capitalized
interest account, a reserve account
and a rebate account.
The rest of this section describes the
trust student loans and trust accounts
more fully.
As of the statistical cutoff date, the
weighted average annual interest rate of
the statistical trust student loans was
approximately 6.32% and their weighted
average remaining term to scheduled
maturity was approximately 129 months.
Trust Student Loans. The trust student
loans are education loans to students
and parents of students made under the
Federal Family Education Loan
Program, known as the FFELP.
Approximately 91.01% of the statistical
trust student loans by principal balance
are Stafford loans, and approximately
8.99% are PLUS or Graduate PLUS
loans. None of the trust student loans is
Any special allowance payments on the
trust student loans are based on the
three-month financial commercial paper
rate as to approximately 99.95% of the
statistical trust student loans by principal
balance and the 91-day treasury bill rate
as to approximately 0.05% of the
5
“The Trust Student Loan Pool—
Insurance of Trust Student Loans;
Guarantors of Trust Student Loans” in
this offering memorandum.
statistical trust student loans by principal
balance. For more details concerning
the trust student loans, see “Annex A—
Characteristics of the Statistical Trust
Student Loan Pool” attached to this
offering memorandum.
Collection Account. The indenture
trustee will establish and maintain the
collection account as an asset of the
trust in the name of the indenture
trustee. The trust will make an initial
deposit from the net proceeds of the
sale of the notes into the collection
account on the closing date. The
deposit will be in cash or eligible
investments equal to the excess, if any,
of the pool balance as of the statistical
cutoff date over the pool balance as of
the closing date.
Approximately 88.06% of the statistical
trust student loans by principal balance
are 97% guaranteed and approximately
11.94% of the statistical trust student
loans by principal balance are 98%
guaranteed, in each case, with respect
to principal and interest by one of the
guaranty agencies described in Annex A
attached to this offering memorandum
and reinsured by the U.S. Department of
Education under the Higher Education
Act.
The master servicer will cause all
collections on the trust student loans,
interest subsidy payments, special
allowance payments and certain other
funds to be deposited into the collection
account, including investment earnings
on amounts on deposit in the trust
accounts, as described in this offering
memorandum. See “Description of the
Notes—Distributions—Deposits into the
Collection Account” in this offering
memorandum.
The trust student loans will be acquired
by the depositor directly from BANA,
which originated the loans, based on
criteria described in this offering
memorandum under “The Trust Student
Loan Pool.”
Significant Guarantors. The guaranty
agencies described in Annex A attached
to this offering memorandum guarantee
all of the trust student loans. The
California Student Aid Commission
guarantees approximately 34.54% of the
statistical trust student loans by principal
balance, the Texas Guaranteed Student
Loan Corporation guarantees
approximately 23.34% of the statistical
trust student loans by principal balance
and the New York State Higher
Education Services Corporation
guarantees approximately 10.51% of the
statistical trust student loans by principal
balance. No other guarantor
guarantees more than 10% of the
statistical trust student loans. The trust
student loans are also reinsured by the
U.S. Department of Education. See
Capitalized Interest Account. The
indenture trustee will establish and
maintain a capitalized interest account
as an asset of the trust in the name of
the indenture trustee. The trust will
make an initial deposit from the net
proceeds of the sale of the notes into
the capitalized interest account on the
closing date. The deposit will be in cash
or eligible investments equal to
$42,000,000. Amounts on deposit in the
capitalized interest account will not be
replenished.
6
Amounts remaining in the reserve
account on any distribution date in
excess of the specified reserve account
balance, after making the payments
described below, will be deposited into
the collection account for distribution on
that distribution date.
The administrator will cause the
calculation agent to instruct the
indenture trustee, in writing, to withdraw
funds on deposit in the capitalized
interest account to cover shortfalls, if
any, in payments described in the 1st
through 3rd items in the chart of page 9
of this offering memorandum. To the
extent funds are available in the
capitalized interest account, they will be
used prior to using amounts on deposit
in the reserve account as described
below. Amounts on deposit in the
capitalized interest account may also be
utilized to cover shortages, if any, with
respect to amounts required to be
remitted to the Department of Education
from the rebate account, as described
below in this offering memorandum.
The specified reserve account balance
is the amount required to be maintained
in the reserve account. The specified
reserve account balance for any
distribution date will be equal to the
greater of:
All funds remaining on deposit in the
capitalized interest account on the April
2012 distribution date will be deposited
into the collection account and included
as a part of available funds on that
distribution date.
•
0.25% of the pool balance as of the
end of the related collection period;
and
•
$1,289,117.77.
The specified reserve account balance
will be subject to adjustment as
described in this offering memorandum.
In no event will it exceed the aggregate
outstanding balance of the notes.
The reserve account will be available on
each distribution date and each monthly
servicer payment date to cover any
shortfalls in payments of primary
servicing and administration fees and
the noteholders’ interest distribution
amount.
Reserve Account. The indenture trustee
will establish and maintain a reserve
account as an asset of the trust in the
name of the indenture trustee. The trust
will make an initial deposit from the net
proceeds of the sale of the notes into
the reserve account on the closing date.
The deposit will be in cash or eligible
investments equal to $3,222,794.42.
In addition, the reserve account will be
available on the maturity date for the
notes and upon termination of the trust,
to cover shortfalls in payments of the
noteholders’ principal and accrued
interest on the notes.
Amounts on deposit in the reserve
account may be replenished on each
distribution date by additional funds
available after all prior required
distributions have been made. See
“Description of the Notes—Credit
Enhancement—Reserve Account” in
this offering memorandum.
If the market value of the reserve
account on any distribution date is
sufficient to pay the remaining principal
balance, and interest accrued on the
notes and any carryover servicing fees,
7
The administrator will cause the
calculation agent to instruct the
indenture trustee, in writing, to withdraw
funds on deposit in the collection
account, the rebate account and, to the
extent required, the capitalized interest
account and the reserve account, on
each monthly servicer payment date
and/or distribution date, as applicable.
Available funds will be applied on each
distribution date generally as shown in
the chart below.
amounts on deposit in that account will
be so applied on that distribution date.
The reserve account enhances the
likelihood of payment to noteholders. In
certain circumstances, however, the
reserve account could be depleted.
This depletion could result in shortfalls
in distributions to noteholders. See
“Description of the Notes—Credit
Enhancement—Reserve Account” in
this offering memorandum.
Rebate Account. The indenture trustee
will establish and maintain a rebate
account as an asset of the trust in the
name of the indenture trustee. On or
before each monthly servicer payment
date, the administrator will instruct the
indenture trustee, in writing, to transfer
from the collection account to the rebate
account the monthly accrual of interest
paid by borrowers on trust student loans
originated on or after April 1, 2006 that
exceeds the special allowance support
levels applicable to such trust student
loans, which we refer to in this offering
memorandum as “floor income.” These
deposited amounts will be used to offset
the amount of floor income, if any, that
is expected to be netted by the U.S.
Department of Education against the
interest subsidy payments and/or
special allowance payments otherwise
due to the trust for that collection period.
At the end of the next succeeding
collection period all sums deposited into
the rebate account during the previous
collection period will be withdrawn on
the related distribution date and become
part of available funds on such date.
See “Description of the Notes—
Distributions” in this offering
memorandum for a more detailed
description of distributions.
Administration of the Trust
Distributions
8
DISTRIBUTION DATE CASHFLOWS
Collection Account
1st
MASTER SERVICER
(Primary Servicing Fee)
2nd
ADMINISTRATOR and CALCULATION AGENT
(Administration Fees)
3rd
NOTEHOLDERS
(Interest
Distribution Amount)
4th
NOTEHOLDERS
(Principal
Distribution Amount)
5th
RESERVE ACCOUNT
(Amount, if any, necessary
to reinstate the reserve account balance to the
Specified Reserve Account Balance)
6th
INDENTURE TRUSTEE, ELIGIBLE LENDER
TRUSTEE AND DELAWARE TRUSTEE
(Any unpaid fees and expenses including without
limitation any indemnity amounts, to the extent such
amounts have not been paid by the administrator)
7th
MASTER SERVICER
(Carryover Servicing Fee, if any)
8th
NOTEHOLDERS
(Any remaining amounts, until the principal balance
of the notes has been reduced to zero)
9th
RESIDUAL CERTIFICATEHOLDER
(Any remaining amounts)
9
circumstances set forth in the
subservicing agreement, the subservicer
may terminate its servicing obligations
with respect to the trust student loans.
In the event that the subservicing
agreement is terminated, the master
servicer will be obligated to either
appoint a new subservicer or take over
servicing of the related trust student
loans. See “Servicing and
Administration—Servicing Procedures”
in this offering memorandum.
Transfer of the Assets to the Trust
Under a sale agreement, the depositor
will sell the trust student loans to the
trust. The eligible lender trustee will
hold legal title to the trust student loans
on behalf of the trust.
If the depositor breaches a
representation or warranty under the
sale agreement which has a material
adverse effect on the interest of the trust
in any trust student loan, generally it will
have to cure the breach, repurchase or
substitute that trust student loan or
reimburse the trust for losses resulting
from the breach.
BANA will be responsible for payment of
all compensation due to the subservicer
for performance of its servicing
obligations under the subservicing
agreement.
BANA will have similar obligations as
seller under the purchase agreement.
See “Transfer and Servicing
Agreements—Purchase of Student
Loans by the Depositor;
Representations and Warranties of the
Seller” in this offering memorandum.
Under the servicing agreements, in the
event that a trust student loan is denied
the benefit of any applicable guarantee
due to a material breach or servicing
error with respect to such trust student
loan, the master servicer or the
subservicer will be obligated to
purchase or substitute, as applicable,
the affected trust student loan. See
“Servicing and Administration—Master
Servicer Covenants” and “—Matters
Regarding the Master Servicer” in this
offering memorandum. BANA will
remain obligated and be liable to the
trust, the eligible lender trustee, the
indenture trustee, the administrator and
the noteholders for the servicing of the
trust student loans in accordance with
the terms of the master servicing
agreement without any decrease in its
obligations and liability by virtue of the
appointment of any subservicer and to
the same extent and under the same
conditions as if BANA alone were
servicing the trust student loans. Under
some circumstances, the master
servicer may transfer its obligations as
master servicer. See “Servicing and
Servicing of the Assets
On the closing date, the trust will enter
into a master servicing agreement with
BANA, under which BANA will act as
master servicer with respect to the trust
student loans and will arrange for and
oversee performance of its servicing
obligations by the subservicer.
BANA will enter into a subservicing
agreement with ACS pursuant to which
ACS will assume, as subservicer,
responsibility for servicing, maintaining
custody of and collecting payments on
the trust student loans. It will also
submit the required application to bill
and collect payments from the guaranty
agencies and the U.S. Department of
Education. Under certain limited
10
dates or distribution dates, as
applicable, that remain unpaid.
Administration—Matters Regarding the
Master Servicer” in this offering
memorandum.
The primary servicing fee for any month
will equal 1/12 of 0.90% of the pool
balance, calculated as of the closing
date or the first day of the preceding
calendar month, as the case may be.
Under the terms of the servicing
agreements, if the master servicer or the
subservicer, as applicable, breaches a
covenant under the applicable servicing
agreement regarding a trust student
loan that has a materially adverse effect
on the interest of the trust, generally it
will have to cure the breach, purchase
that trust student loan or reimburse the
trust for losses resulting from the
breach. Under the terms of the
subservicing agreement, if the
subservicer breaches a covenant
regarding a trust student loan and fails
to cure such breach within the time
period allotted under the subservicing
agreement, generally the subservicer
will be obligated to purchase the related
trust student loan or reimburse the trust
for losses resulting from such breach.
See “Servicing and Administration—
Master Servicer Covenants” in this
offering memorandum. See also, “The
Trust Student Loan Pool—Insurance of
Trust Student Loans” and “—Cure
Period for Trust Student Loans” in this
offering memorandum.
The carryover servicing fee is the sum
of:
•
the amount of specified increases in
the costs incurred by the master
servicer;
•
the amount of specified conversion,
transfer and removal fees;
•
any amounts described in the first
two bullets that remain unpaid from
prior distribution dates;
•
the amount of specified increases in
the fees payable by the master
servicer pursuant to the subservicing
agreement that exceed its primary
servicing fee; and
•
interest on any unpaid amounts.
The carryover servicing fee will be
payable to the master servicer on each
distribution date out of available funds
remaining after all payments owing on
the notes have been made.
Compensation of the Master Servicer
The master servicer will receive two
separate fees: a primary servicing fee
and a carryover servicing fee.
See “Description of the Notes—
Distributions” and “—Servicing
Compensation” in this offering
memorandum.
The primary servicing fee will be
payable in arrears out of available funds
on each monthly servicer payment date
or distribution date, as applicable,
beginning in August 2010. Primary
servicing fees due and payable to the
master servicer will include amounts
from any prior monthly servicer payment
Termination of the Trust
The trust will terminate upon:
•
11
the maturity or other liquidation of
the last trust student loan and the
This prescribed minimum purchase
amount is the amount that would be
sufficient to:
disposition of any amount received
upon its liquidation; and
•
the payment of all amounts required
to be paid to the noteholders; or
•
the purchase, or the arrangement for
the purchase, by the master servicer
of all remaining trust student loans
on any distribution date on or after
the first distribution date when the
Pool Balance is 10% or less of the
initial Pool Balance, as described
under “Description of the Notes—
Optional Purchase” in this offering
memorandum.
•
pay to noteholders the interest
payable on the related distribution
date; and
•
reduce the outstanding principal
balance of the notes to zero.
See “Description of the Notes—Optional
Purchase” and “The Trust Student Loan
Pool—Termination of the Trust” in this
offering memorandum.
Residual Certificateholder
See “The Trust Student Loan Pool—
Termination of the Trust” in this offering
memorandum.
Under the trust agreement, the trust will
also issue a residual certificate to the
depositor. This residual certificate will
represent the beneficial ownership
interest in the trust. The depositor will
be the initial holder of the residual
certificate. At any time thereafter, the
depositor may transfer ownership of the
residual certificate to another affiliate of
BANA and/or it may be sold to an
unaffiliated third party. The residual
certificate is not being offered for sale by
this offering memorandum.
Optional Purchase
The master servicer may purchase or
arrange for the purchase of all
remaining trust student loans on any
distribution date on or after the first
distribution date on which the pool
balance is 10% or less of the initial pool
balance.
The exercise of this purchase option will
result in the early retirement of the
remaining notes. The purchase price
will equal the amount required to prepay
in full, including all accrued and unpaid
interest, the remaining trust student
loans as of the end of the preceding
collection period, but not less than a
prescribed minimum purchase amount.
Distributions on the Residual Certificate.
The residual certificate will not bear
interest and will not have a principal
balance. Distributions on the residual
certificate will be made only after the
outstanding principal balance of the
notes has been reduced to zero. See
“Description of the Notes—Distributions”
in this offering memorandum.
12
Tax Considerations
•
an exemption from the prohibited
transaction provisions of Section 406
of the Employee Retirement Income
Security Act of 1974, as amended,
and Section 4975 of the Internal
Revenue Code of 1986, as
amended, applies, so that the
purchase or holding of the notes will
not result in a non-exempt prohibited
transaction; and
•
the purchase or holding of the notes
will not cause a non-exempt violation
of any substantially similar federal,
state, local or foreign laws.
Subject to important considerations
described in this offering memorandum:
•
In the opinion of federal tax counsel
for the trust, the notes will be
characterized as debt for federal
income tax purposes;
•
In the opinion of federal tax counsel
for the trust, the trust will not be
characterized as an association or a
publicly traded partnership taxable
as a corporation for federal income
tax purposes; and
•
Each fiduciary who purchases a note
will be deemed to represent that an
exemption exists and applies to it and
that no non-exempt violations of any
substantially similar laws will occur.
In the opinion of Delaware tax
counsel for the trust, the same
characterizations would apply for
Delaware state income tax purposes
as for federal income tax purposes
and noteholders who are not
otherwise subject to Delaware
taxation on income will not become
subject to Delaware tax solely as a
result of their ownership of notes.
See “ERISA Considerations” in this
offering memorandum for additional
information concerning the application of
ERISA.
Ratings of the Notes
The tax accounting for the notes for U.S.
federal income tax purposes is highly
complex. For a discussion of the rules
and for a general discussion of the tax
treatment of the notes, see “U.S.
Federal Income Tax Consequences” in
this offering memorandum.
ERISA Considerations
The notes are required to be rated at
issuance in the highest rating category
by Standard & Poor’s Ratings Services,
a Standard & Poor’s Financial Services
LLC business, and Moody’s Investors
Service, Inc. These rating agencies are
sometimes referred to herein as “S&P”
and “Moody’s,” respectively.
Subject to important considerations and
conditions described in this offering
memorandum, the notes may, in
general, be purchased by or on behalf of
an employee benefit plan or other
retirement arrangement, including an
insurance company general account,
only if:
Other credit rating agencies that we
have not engaged to rate the notes may
nevertheless issue unsolicited credit
ratings on the notes. If any such
unsolicited ratings are issued, we
cannot assure you that they will not be
different from those ratings assigned by
S&P or Moody’s.
13
A rating addresses only the likelihood of
the timely payment of stated interest
and the payment of principal at final
maturity, and does not address the
timing or likelihood of principal
distributions prior to final maturity. See
“Ratings of the Notes” in this offering
memorandum.
Identification Numbers
The notes will have the following CUSIP
Numbers, ISINs and European Common
Codes:
CUSIP Numbers
•
Rule 144A CUSIP No.:
06052L AA5
•
Regulation S CUSIP No.:
U0662T AA0
Listing Information
Application has been made to the Irish
Stock Exchange for the notes to be
admitted to the official list and trading on
its regulated market. We cannot assure
you that the application will be granted.
So long as the notes are listed on the
Irish Stock Exchange, and its rules so
require, the administrator will cause
notices relating to the notes, including if
the notes are delisted, to be published
on the Irish Stock Exchange’s website at
http://www.ise.ie/.
International Securities Identification
Numbers (ISIN)
The notes have been accepted for
clearing and settlement through
Clearstream, Luxembourg and
Euroclear.
•
Rule 144A International
Securities Identification
No. (ISIN):
US06052LAA52
•
Regulation S International
Securities Identification
No. (ISIN):
USU0662TAA08
European Common Codes
Risk Factors
•
Some of the factors you should consider
before making an investment in the
notes are described in this offering
memorandum under “Risk Factors.”
Rule 144A European
Common Code:
051856015
•
Regulation S European
Common Code:
051856040
14
RISK FACTORS
You should carefully consider the following risk factors in order to understand the
structure and characteristics of the notes and the potential merits and risks of an
investment in the notes. Potential investors must review and be familiar with the
following risk factors in deciding whether to purchase any notes. These risk factors
could affect your investment in or return on the notes.
Because the Notes May Not Provide
Regular or Predictable Payments, You
May Not Receive the Return on Your
Investment That You Expected
The notes may not provide a regular or
predictable schedule of payments or
payment on any specific date due to,
among other things, prepayments and
defaults on the trust student loans. See
“Prepayments, Extensions, Weighted
Average Lives and Expected Maturities
of the Notes” in this offering
memorandum. Accordingly, you may
not receive the return on your
investment that you expected.
The Notes Are Not Suitable Investments
for All Investors
The notes are complex investments that
should be considered only by investors
who, either alone or with their financial,
tax and legal advisors, have the
expertise to analyze the prepayment,
reinvestment, default and market risk,
and tax consequences of such an
investment, as well as the interaction of
these factors.
You Will Bear Prepayment and Extension
Risk Due to Actions Taken by Individual
Borrowers and Other Variables Beyond
Our Control
A borrower may prepay a trust student
loan in whole or in part, at any time.
The rate of prepayments on the trust
student loans may be influenced by a
variety of economic, social, legislative,
competitive and other factors, including
changes in interest rates, the availability
of alternative financings and the general
economy. Various loan consolidation
programs available to eligible borrowers
may increase the likelihood of
prepayments. See “BANA’s Student
Loan Financing Business—
Consolidation/Repayment Programs” in
this offering memorandum. In addition,
the trust may receive unscheduled
15
payments due to defaults on the trust
student loans and purchases thereof by
the master servicer or the depositor.
Because the pool includes thousands of
trust student loans, it is impossible to
predict the amount and timing of
payments that will be received and paid
to noteholders in any period.
Consequently, the length of time that
your notes are outstanding and accruing
interest may be shorter than you expect.
On the other hand, the expected
maturity of the trust student loans may
be extended as a result of grace
periods, deferment periods and, under
some circumstances, forbearance
periods. This may lengthen the
remaining term of the trust student loans
and delay principal payments on your
notes. In addition, the amount available
for distribution to you will be reduced if
borrowers fail to pay timely the principal
and interest due on the trust student
loans. Consequently, the length of time
that your notes are outstanding and
accruing interest may be longer than
you expect.
The right of the master servicer to
purchase or arrange for the purchase of
all remaining trust student loans after
the pool balance is 10% or less of the
initial pool balance creates additional
uncertainty regarding the timing of
payments to noteholders.
The effect of these factors is impossible
to predict. To the extent they create
reinvestment risk, you will bear that risk.
The Trust Will Have Limited Assets From
Which to Make Payments on the Notes,
Which May Result in Losses
16
The trust will not have, nor will it be
permitted to have, significant assets or
sources of funds other than the trust
student loans, the guarantee
agreements, the reserve account and
the capitalized interest account.
Consequently, you must rely upon
payments on the trust student loans
from the borrowers and guarantors and
amounts on deposit in the reserve
account and the capitalized interest
account for payments on your notes. If
these sources of funds are unavailable
or insufficient to make payments on
your notes, you may experience a loss
on your investment.
Certain Credit and Liquidity Enhancement
Features Are Limited and if They Are
Depleted, There May Be Shortfalls in
Distributions to Noteholders
Certain credit and liquidity enhancement
features, including the reserve account
and the capitalized interest account, are
limited in amount. In addition, the
amounts on deposit in the capitalized
interest account will not be replenished
and are available for a limited duration,
and the period during which such funds
will be available will not be extended. In
certain circumstances, if there is a
shortfall in available funds, such
accounts may be depleted. This
depletion could result in shortfalls and
delays in distributions to noteholders.
Your Ability to Transfer the Notes May Be
Limited
This offering of the notes will not be
registered under the Securities Act, any
United States state securities laws or
“Blue Sky” laws, or any securities laws
of any other jurisdiction. Consequently,
the notes are not transferable other than
in accordance with an exemption from
the registration provisions of the
Securities Act and applicable United
States state securities laws and upon
satisfaction of certain other provisions of
the indenture pursuant to which the
notes are issued.
It is intended, however, that transfers of
interests in the notes will be cleared and
settled through Clearstream,
Luxembourg or Euroclear, as
applicable, and will be effected in
accordance with the rules and
17
procedures of Clearstream,
Luxembourg or Euroclear or their
respective depositories.
There is currently no private market for
the notes and it is uncertain whether
such a market will develop. The initial
purchasers expect, but are not
obligated, to make a market in the notes
solely to facilitate trading among QIBs
(pursuant to Rule 144A) and non-U.S.
Persons (pursuant to the requirements
of Regulation S). There is no assurance
that either such market, if developed,
will continue. If a secondary market
does not develop, the spread between
the bid price and the ask price for your
notes may widen, thereby reducing the
net proceeds to you from the sale of
your notes.
Current Illiquid Market Conditions May
Continue in the Future
Despite recent federal market
interventions and programs, the recent
period of general market illiquidity may
continue or even worsen and may
adversely affect the secondary market
for your notes. Accordingly, you may
not be able to sell your notes when you
want to do so or you may be unable to
obtain the price that you wish to receive
for your notes and, as a result, you may
suffer a loss on your investment.
The Characteristics of the Statistical
Trust Student Loans as of the Statistical
Cutoff Date May Differ From the Pool of
Trust Student Loans Sold to the Issuing
Entity on the Closing Date
The statistical information in this offering
memorandum reflects only the
characteristics of the trust student loans
as of the statistical cutoff date. The
statistical information presented in this
offering memorandum is based on a
statistical pool of trust student loans as
of the statistical cutoff date. The
weighted average characteristics of the
trust student loans sold to the issuing
entity on the closing date will be
selected from the statistical pool and will
not be identical to, but will not materially
differ from, the characteristics of the
18
trust student loans in “Annex A—
Characteristics of the Statistical Trust
Student Loan Pool” attached to this
offering memorandum. The trust
student loans actually sold to the trust
on the closing date will have
characteristics that differ somewhat
from the characteristics of the statistical
trust student loans as of the statistical
cutoff date due to payments received on
and other changes in these loans that
occur during the period from the
statistical cutoff date to the closing date.
However, in making your investment
decision, you should assume that the
actual characteristics of the trust student
loans will vary somewhat from the
characteristics of the statistical trust
student loans presented in this offering
memorandum as of the statistical cutoff
date.
Your Notes Will Have Basis Risk, Which
Could Compromise the Trust’s Ability to
Pay Principal and Interest on Your Notes
19
Basis risk is the risk that shortfalls might
occur because, among other things, the
effective interest rates of the trust
student loans (after taking into account
special allowance payments, if any)
adjust on the basis of certain indices
and the interest rate of the notes adjusts
on the basis of a different index or
adjusts on different dates than that of
the trust student loans. If a shortfall
were to occur, the trust’s ability to pay
principal and/or interest on your notes
could be compromised. See “Annex
A—Characteristics of the Statistical
Trust Student Loan Pool—Composition
of the Trust Student Loans as of the
Statistical Cutoff Date” attached to this
offering memorandum which specifies
the percentages of trust student loans
that (after taking into account special
allowance payments, if any) adjust
based on the 91-day treasury bill rate or
the commercial paper rate, as
applicable.
You must rely on forms of credit
enhancement, to the extent available, to
mitigate the basis risk associated with
your notes. There can be no assurance
that the amount of credit enhancement
will be sufficient to cover the basis risk
associated with the notes.
You May Incur Losses or Delays in
Payments on Your Notes if Borrowers
Default on the Trust Student Loans
If a borrower defaults on a trust student
loan that is only 98% or 97%
guaranteed, the trust will experience a
loss of approximately 2% or 3%, as the
case may be, of the outstanding
principal and accrued interest on that
trust student loan. If defaults occur on
the trust student loans and the credit
enhancement described in this offering
memorandum is insufficient, you may
suffer a delay in payment or losses on
your notes.
If a Guarantor of the Trust Student Loans
Experiences Financial Deterioration or
Failure, You May Suffer Delays in
Payment or Losses on Your Notes
All of the trust student loans will be
unsecured. As a result, the only source
for payment of a trust student loan other
than from the borrower is the guarantee
provided by the applicable guarantor.
Student loans acquired by the trust may
be subject to guarantee agreements
with a number of individual guarantors.
A deterioration of a guarantor’s financial
condition and ability to honor guarantee
claims could result in a failure of that
guarantor to make guarantee payments
to the eligible lender trustee in a timely
manner, or at all. The financial
condition of a guarantor could be
adversely affected by a number of
factors, including the amount of claims
made against that guarantor as a result
of borrower defaults.
20
A FFELP guarantor’s financial condition
and ability to honor guarantee claims
could be adversely affected by a
number of other factors including:
•
the amount of claims made against
that guarantor as a result of
borrower defaults;
•
the amount of claims reimbursed to
that guarantor from the U.S.
Department of Education, which
range from 75% to 100% of the
guaranteed portion of the related
loan, depending on the date such
loan was made and the historical
performance of the guarantor;
•
changes in legislation that may
reduce expenditures from the U.S.
Department of Education that
support federal guarantors or that
may require guarantors to pay more
of their reserves to the U.S.
Department of Education; and
•
the continued voluntary waiver by
the guarantor of the guarantee fee
payable by a borrower upon
disbursement of a student loan.
If the financial condition of a guarantor
deteriorates, it may fail to make
guarantee payments in a timely manner,
or at all. In that event, as described
below, you may suffer delays in
payment or losses on your notes.
The U.S. Department of Education’s
Failure to Make Reinsurance Payments
May Negatively Affect the Timely Payment
of Principal and Interest on Your Notes
21
If a FFELP guarantor is unable to meet
its guarantee obligations, the trust may
submit claims directly to the U.S.
Department of Education for payment.
The U.S. Department of Education’s
obligation to pay guarantee claims
directly is dependent upon its
determination that the guarantor is
unable to meet its guarantee
obligations. If the U.S. Department of
Education delays in making this
determination, you may suffer a delay in
the payment of principal and interest on
your notes. In addition, if the U.S.
Department of Education determines
that the FFELP guarantor is able to
meet its guarantee obligations, the U.S.
Department of Education will not make
guarantee payments to the trust. The
U.S. Department of Education may or
may not make the necessary
determination that the guarantor is
unable to meet its guarantee
obligations. If the U.S. Department of
Education determines that the guarantor
is unable to meet its guarantee
obligations, it may or may not make this
determination or the ultimate payment of
the guarantee claims in a timely
manner. This could result in delays or
losses on your investment.
Payment Offsets by FFELP Loan
Guarantors or the U.S. Department of
Education Could Prevent the Trust from
Paying You the Full Amount of the
Principal and Interest Due on Your Notes
22
The eligible lender trustee may use the
same U.S. Department of Education
lender identification number for FFELP
loans in this trust as it uses for other
FFELP loans it holds on behalf of other
trusts established by the depositor. If it
does, the billings submitted by the
subservicer to the U.S. Department of
Education (for items such as special
allowance payments or interest subsidy
payments) and the claims submitted to
the guarantors will be consolidated with
the billings and claims for payments for
student loans held by other trusts using
the same lender identification number.
Payments on those billings by the U.S.
Department of Education as well as
claim payments by the applicable
guarantors will be made to the eligible
lender trustee, or to the master servicer
on behalf of the eligible lender trustee,
in a lump sum. Those payments must
be allocated among the various issuing
entities that reference the same lender
identification number.
If the U.S. Department of Education or a
guarantor determines that the eligible
lender trustee owes it a liability on any
trust student loan, including loans it
holds on behalf of this trust or other
trusts established by the depositor, the
U.S. Department of Education or the
applicable guarantor may seek to collect
that liability by offsetting it against
payments due to the eligible lender
trustee under the terms of the applicable
trust. Any offsetting or shortfall of
payments due to the eligible lender
trustee could adversely affect the
amount of available funds for any
collection period and thus the trust’s
ability to pay you principal and interest
on your notes.
The master servicing agreement for
your notes and other servicing
agreements of the depositor in respect
of the other trusts established by the
depositor will contain provisions for
cross-indemnification concerning those
payments and offsets. Such provisions
require one entity to compensate the
other or accept a lesser payment to the
extent the latter has been assessed for
the liability of the former. Even with
cross-indemnification provisions,
however, the amount of funds available
to the trust from indemnification may not
necessarily be adequate to compensate
the trust and investors in the notes for
any previous reduction in available
funds.
You May Be Unable to Reinvest Principal
Payments at the Yield You Earn on the
Notes
23
Asset-backed notes usually produce
increased principal payments to
investors when market interest rates fall
below the interest rates on the
collateral—student loans in this case—
and decreased principal payments when
market interest rates rise above the
interest rates on the collateral. As a
result, you are likely to receive more
money to reinvest at a time when other
investments generally are producing
lower yields than the yield on the notes.
Similarly, you are likely to receive less
money to reinvest when other
investments generally are producing
higher yields than the yield on the notes.
A Failure to Comply with Student Loan
Origination and Servicing Procedures
Could Jeopardize Guarantor, Interest
Subsidy and Special Allowance Payments
on the Trust Student Loans, Which May
Result in Delays in Payment or Losses on
Your Notes
The rules under which the trust student
loans were originated, including the
Higher Education Act or the program
rules, require lenders making and
servicing student loans and the
guarantors, if any, guaranteeing those
loans to follow specified procedures,
including due diligence procedures, to
ensure that the trust student loans are
properly originated, disbursed and
serviced.
Failure to follow these procedures may
result in:
•
the U.S. Department of Education’s
refusal to make reinsurance
payments to the applicable
guarantor or to make interest
subsidy payments and special
allowance payments on the trust
student loans; or
•
the guarantors’ inability or refusal to
make guarantee payments on the
trust student loans.
Loss of any loan program payments
could adversely affect the amount of
available funds and the trust’s ability to
pay principal and interest on your notes.
The Inability of the Depositor or the
Master Servicer to Meet Its Repurchase
Obligation May Result in Losses on Your
Notes
24
Under some circumstances, the trust
has the right to require the depositor or
the master servicer to purchase a trust
student loan or provide the trust with a
substitute student loan. This right arises
generally if a breach of the
representations, warranties or
covenants of the depositor or the master
servicer, as applicable, has a material
adverse effect on the trust, and is not
cured within the applicable cure period.
We cannot guarantee you, however,
that the depositor or the master servicer
will have the financial resources to
make a purchase or that eligible student
loans will be available for substitution.
In this case, you will bear any resulting
loss. See “—BANA’s Suspension of
Origination of New FFELP Loans, the
Future Termination of the FFELP
Program and BANA’s Subsequent
Inability to Meet its Substitution
Obligation May Cause You to Bear
Prepayment Risk” below.
BANA’s Suspension of Origination of
New FFELP Loans and BANA’s
Subsequent Inability to Meet its
Substitution Obligation May Cause You to
Bear Prepayment Risk
Effective December 5, 2009, BANA
suspended the origination of loans
through the FFELP; it continues to
participate in the FFELP by making
disbursements on loans originated
pursuant to applications received prior
to such date, and by managing its
FFELP loan portfolio. To the extent
BANA is required, in its capacity as
master servicer, to substitute trust
student loans pursuant to its obligations
under the master servicing agreement,
but there are no loans remaining in its
student loan portfolio, BANA may be
unable to fulfill this substitution
obligation with respect to the trust and
would be required to repurchase the
affected trust student loans.
The Notes May Be Repaid Early Due to an
Exercise of the Purchase Option. If This
Happens, Your Yield May Be Affected and
You Will Bear Reinvestment Risk
The notes may be repaid before you
expect them to be if the master servicer
or other applicable entity exercises its
option to purchase all of the trust
student loans.
25
Such purchase would result in the early
retirement of the notes outstanding on
that date. If this happens, your yield on
the notes may be affected. You will
bear the risk that you cannot reinvest
the money you receive in comparable
notes at an equal yield.
FDIC Receivership or Conservatorship of
BANA Could Result in Delays in
Payments or Losses on Your Notes
If BANA were to become insolvent, were
to violate applicable regulations, or if
other similar circumstances were to
occur, the Federal Deposit Insurance
Corporation (“FDIC”) could be appointed
receiver or conservator of BANA. As
receiver or conservator, the FDIC would
have various powers under the Federal
Deposit Insurance Act, including the
repudiation and automatic stay powers
described under “Certain Legal Aspects
of the Trust Student Loans—Certain
Matters Relating to Bankruptcy” in this
offering memorandum. We have
structured the transaction contemplated
by this offering memorandum to comply
with the FDIC’s interim rule relating to
securitizations. Under that rule, the
FDIC has stated that it will not use its
repudiation power to reclaim, recover or
recharacterize a bank’s transfer of
financial assets in connection with a
securitization completed on or prior to
September 30, 2010 that complies with
the interim rule’s conditions.
Additionally, the FDIC has indicated that
it does not believe the automatic stay
applies to financial assets transferred in
connection with a securitization.
If the FDIC were to successfully assert
that this transaction does not comply
with the interim rule and that the transfer
of trust student loans under the
purchase agreement was not a legal
true sale, then the depositor would be
treated as having made a loan to BANA,
secured by the transferred trust student
26
loans. If the FDIC repudiated that loan,
the amount of compensation that the
FDIC would be required to pay would be
limited to “actual direct compensatory
damages,” as discussed under “Certain
Legal Aspects of the Trust Student
Loans—Certain Matters Relating to
Bankruptcy” in this offering
memorandum.
If the FDIC were appointed as
conservator or receiver for BANA the
FDIC could:
•
require the trust, as assignee of the
depositor, to go through an
administrative claims procedure to
establish its rights to payments
collected on the trust student loans;
or
•
request a stay of proceedings to
liquidate claims or otherwise enforce
contractual and legal remedies
against BANA; or
•
repudiate without compensation
BANA’s ongoing servicing
obligations under the master
servicing agreement, such as its
duty to collect and remit payments or
otherwise service the trust student
loans; or
•
argue that the automatic stay
prevents the indenture trustee, the
eligible lender trustee and the other
transaction parties from exercising
their rights, remedies and interests
for up to 90 days.
If the FDIC, as conservator or receiver
for BANA, were to take any of the
actions described above, distributions of
principal and interest on the notes could
be delayed or reduced. See “Certain
Legal Aspects of the Trust Student
27
Loans—Certain Matters Relating to
Bankruptcy” in this offering
memorandum.
A Master Servicer or Subservicer Default
May Result in Additional Costs, Increased
Servicing Fees by a Substitute Master
Servicer or a Diminution in Servicing
Performance, Any of Which May Have an
Adverse Effect on Your Notes
If a default occurs under the master
servicing agreement, the indenture
trustee or the noteholders may remove
the master servicer without the consent
of the eligible lender trustee. If a default
occurs under the subservicing
agreement, the master servicer, or the
administrator on behalf of the trust, may
remove the subservicer without the
consent of the eligible lender trustee. In
the event of the removal of the master
servicer or the subservicer and the
appointment of a successor master
servicer or subservicer, we cannot
predict:
•
the cost of the transfer of servicing to
the successor master servicer or
subservicer;
•
the ability of the master servicer to
perform its obligations under the
master servicing agreement and the
ability of the master servicer to
cause the subservicer to perform its
obligations under the subservicing
agreement; or
•
the servicing fees charged by the
successor master servicer.
In addition, the noteholders have the
ability, with some exceptions, to waive
defaults by the master servicer.
Furthermore, the indenture trustee, the
master servicer or the noteholders may
experience difficulties in appointing a
successor master servicer or
subservicer, as applicable, and during
any transition phase it is possible that
normal servicing activities could be
disrupted, resulting in increased
28
delinquencies and/or defaults on the
trust student loans, or errors or delays in
the collection and allocation of
payments or in the enforcement of
guarantee agreements.
The Bankruptcy of the Subservicer Could
Delay the Appointment of a Successor
Subservicer or Reduce Payments on Your
Notes
In the event of a default by the
subservicer resulting solely from certain
events of insolvency or the bankruptcy
of the subservicer, a court, conservator,
receiver or liquidator may have the
power to prevent the master servicer
from appointing a subservicer, and
delays in the collection of payments on
the trust student loans may occur. Any
delay in the collection of payments on
the trust student loans may delay or
reduce payments to noteholders.
Timely Payments on Your Notes Depend
in Part on the Servicing Ability of the
Subservicer
Although the master servicer is
obligated to cause the trust student
loans to be serviced in accordance with
the terms of the transaction documents,
the timing of payments on the trust
student loans will be directly affected by
the ability of the subservicer to
adequately service the trust student
loans. In addition, the value of the trust
student loans is dependent on the
subservicer’s compliance with federal
regulations to ensure that the
guarantors are obligated to maintain
guaranteed payments and that any
reinsurance by the U.S. Department of
Education is maintained. If the
subservicer defaults on its obligations
and is terminated, or if the subservicing
agreement is voluntarily terminated, the
value of the trust student loans will
depend on the ability of the master
servicer to find an alternative
subservicer to service the trust student
loans, and you may suffer a delay in the
timing of payments on your notes until
any transfer of servicing is completed or
effective.
29
The Trust’s Inclusion of Subserviced
Trust Student Loans May Make It More
Difficult to Find a Successor Master
Servicer
The master servicer or any successor
master servicer may terminate the
subservicer for cause or voluntarily by
paying a deconversion fee. Moreover,
the successor master servicer will be
responsible for any breaches by the
subservicer under the subservicing
agreement. As a result, if necessary, it
may be more difficult to find a successor
master servicer due to the presence of
subserviced trust student loans in the
trust. Any delay in finding a successor
master servicer may cause the market
value and liquidity of your notes to
decline and cause you to suffer a loss
on your investment.
The Indenture Trustee May Have Difficulty
Liquidating Trust Student Loans After an
Event of Default
If an event of default occurs under the
indenture, the indenture trustee may sell
the trust student loans without the
consent of the noteholders if (i) there
has been a payment default on the
notes or (ii) in all other cases, if the
purchase price received from the sale of
the trust student loans is sufficient to
repay all noteholders in full. However,
the indenture trustee may not be able to
find a purchaser for the trust student
loans in a timely manner or the market
value of the trust student loans may not
be high enough to make noteholders
whole.
The Enactment of the Health Care and
Education Reconciliation Act of 2010 and
Any Other Changes in Law May Adversely
Affect the Trust Student Loans, the
Guarantors, the Depositor and BANA and,
Accordingly, Adversely Affect Your Notes
On March 30, 2010, the Health Care
and Education Reconciliation Act of
2010 (the “Reconciliation Act”) was
enacted into law. Effective July 1, 2010,
the Reconciliation Act eliminates the
FFELP. The terms of existing FFELP
loans are not materially affected by the
Reconciliation Act.
The Higher Education Act or other
relevant federal or state laws, rules and
regulations may be further amended or
modified in the future in a manner,
30
including as part of any reauthorization
of the Higher Education Act, that could
adversely affect the federal student loan
programs as well as the trust student
loans made under these programs and
the financial condition of the guarantors.
Among other things, the level of
guarantee payments may be adjusted
from time to time. The elimination of the
FFELP and any other future changes
could affect the ability of BANA, the
depositor or the master servicer to
satisfy their obligations to substitute for
trust student loans. The elimination of
the FFELP and any other future
changes could also have a material
adverse effect on the revenues received
by the guarantors that are available to
pay claims on defaulted trust student
loans in a timely manner.
We cannot predict whether any other
legal or regulatory changes will be
adopted or, if adopted, what impact
those changes would have on the trust,
the trust student loans, the guarantors,
the depositor, BANA or the notes.
The Use of Master Promissory Notes May
Compromise the Indenture Trustee’s
Security Interest in the Trust Student
Loans
For loans disbursed on or after July 1,
1999, a master promissory note
evidences any student loan made to a
borrower under the FFELP. When a
master promissory note is used, a
borrower executes only one promissory
note with each lender. Subsequent
student loans from that lender are
evidenced by a confirmation sent to the
student. Therefore, if a lender
originates multiple student loans to the
same student, all of those trust student
loans are evidenced by a single
promissory note.
Under the Higher Education Act, each
student loan made under a master
promissory note may be sold
independently of any other student loan
31
made under that same master
promissory note. Each student loan is
separately enforceable on the basis of
an original or copy of the master
promissory note. Also, a security
interest in these student loans may be
perfected either through the secured
party taking possession of the original or
a copy of the master promissory note, or
the filing of a financing statement. Prior
to the master promissory note, each
student loan made under the FFELP
was evidenced by a separate note.
Assignment of the original note was
required to effect a transfer and
possession of a copy did not perfect a
security interest in the related student
loan.
It is possible that trust student loans
may be originated under a master
promissory note. If the master servicer
were to deliver a copy of the master
promissory note, in exchange for value,
to a third party that did not have
knowledge of the indenture trustee’s
lien, that third party may also claim an
interest in the trust student loan. It is
possible that the third party’s interest
could be prior to or on parity with the
interest of the indenture trustee.
The indenture permits certain
amendments upon the indenture
trustee’s receipt of a rating confirmation
from each of S&P and Moody’s (to the
extent S&P or Moody’s are then rating
the notes) that the then-current ratings
assigned by such rating agency will not
be downgraded or withdrawn as a result
of those actions. As a result, certain
changes may be made to the indenture
without the consent of the noteholders.
See “Description of the Notes—The
Indenture—Modification of Indenture” in
this offering memorandum.
Certain Actions Can Be Taken Without
Noteholder Approval
32
This offering memorandum sets forth
the minimum required ratings for the
notes. A security rating is not a
recommendation to buy, sell or hold
securities. Similar ratings on different
types of securities do not necessarily
mean the same thing. Either S&P or
Moody’s may revise or withdraw its
rating at any time if it believes
circumstances have changed. A
subsequent downgrade in the rating on
your notes is likely to decrease the price
a subsequent purchaser will be willing to
pay for your notes.
Limitations of Ratings; Withdrawal or
Downgrade of Initial Ratings May
Decrease the Prices of Your Notes;
Unsolicited Ratings
Additionally, other credit rating agencies
that we have not engaged to rate the
notes may nevertheless issue
unsolicited credit ratings on the notes. If
any such unsolicited ratings are issued,
we cannot assure you that they will not
be different from those ratings assigned
by S&P or Moody’s.
Any downgrade, withdrawal or
qualification of the ratings of your notes,
as a result of a change of
circumstances, deterioration in the
performance of the trust student loans,
errors in analysis or otherwise, may
adversely affect the market value of
your notes and/or limit your ability to
resell your notes.
Consumer Protection Laws May Affect
Enforceability of the Trust Student Loans
33
Numerous federal and state consumer
protection laws, including various state
usury laws and related regulations,
impose substantial requirements upon
lenders and servicers involved in
consumer finance. Some states impose
finance charge ceilings and other
restrictions on certain consumer
transactions and require contract
disclosures in addition to those required
under federal law. These requirements
impose specific statutory liability that
could affect an assignee’s ability to
enforce consumer finance contracts
such as the trust student loans. In
addition, the remedies available to the
indenture trustee or the noteholders
upon an event of default under the
indenture may not be readily available
or may be limited by applicable state
and federal laws.
The Servicemembers Civil Relief Act
and similar state and local laws provide
payment relief to borrowers who enter
active military service and to borrowers
in reserve status who are called to
active duty after the origination of their
trust student loans. Recent and
ongoing military operations by the
United States have increased the
number of citizens who are in active
military service, including persons in
reserve status who have been called or
may be called to active duty.
The Trust May Be Affected by Delayed
Payments From Borrowers Called to
Active Military Service
The Servicemembers Civil Relief Act
also limits the ability of a lender in the
FFELP to take legal action against a
borrower during the borrower’s period of
active duty and, in some cases, during
an additional three-month period
thereafter.
We do not know how many trust student
loans have been or may be affected by
the application of these laws. As a
result, there may be unanticipated
delays in payment and losses on the
trust student loans.
34
DEFINED TERMS
In later sections, we use a few terms that we define in the Glossary at the end of
this offering memorandum. These terms appear in bold face on their first use and in
initial capital letters in all cases. In this offering memorandum, the use of the terms
“we,” “us” and “our” refers to the depositor.
FORMATION OF THE TRUST
The Trust
Bank of America Student Loan Trust 2010-1 is a statutory trust newly formed in
accordance with Delaware law on April 22, 2010 under a short-form trust agreement
dated as of April 22, 2010. The short-form trust agreement will be amended and
restated on the closing date pursuant to an amended and restated trust agreement to
be dated the closing date among the depositor, the eligible lender trustee, the Delaware
trustee and the indenture trustee. We refer to the short-form trust agreement and the
amended and restated trust agreement together as the “trust agreement.”
After its formation, the trust will not engage in any activity other than:
•
acquiring, holding and managing the trust student loans and holding the
other assets of the trust and related proceeds;
•
issuing the notes;
•
making payments on the notes; and
•
engaging in other activities that are necessary, suitable or convenient to
accomplish, or are incidental to, the foregoing.
Other than issuing the notes, the trust will not be permitted to borrow money or
make loans to other persons. The fiscal year of the trust will be a calendar year. The
permitted activities of the trust may be amended only with the consent of a majority of
the noteholders; however, the trust agreement may be modified without noteholder
consent if an opinion of counsel is provided to the effect that such proposed revisions
would not adversely affect in any material respect the interests of any noteholder.
The trust was initially capitalized with nominal equity of $10.00, excluding any
amounts to be deposited by the trust into the collection account, the capitalized interest
account and the reserve account. The depositor will use the net proceeds of the sale of
the notes to pay to the trust the amounts to be deposited by the trust into the collection
account, the capitalized interest account and the reserve account. The trust will
purchase the trust student loans from the depositor under a sale agreement to be dated
as of the closing date among the depositor, the trust and the eligible lender trustee. On
the closing date, the depositor will use the net proceeds it receives from the sale of the
trust student loans to pay BANA the purchase price for the trust student loans acquired
35
from it under the purchase agreement to be dated the closing date among BANA, the
depositor and Deutsche Bank Trust Company Americas, as interim eligible lender
trustee.
The property of the trust will consist of:
•
the pool of trust student loans, legal title to which is held by the eligible
lender trustee on behalf of the trust;
•
all funds collected on trust student loans on or after the closing date,
including any special allowance payments and interest subsidy payments;
•
all moneys and investments from time to time on deposit in the Trust
Accounts;
•
its rights under the transfer and servicing agreements, including the right
to require BANA, the depositor, the subservicer or the master servicer to
repurchase trust student loans from it or to substitute student loans under
certain conditions; and
•
its rights under the guarantee agreements with guarantors.
The trust will not own any other assets. The sections “Transfer and Servicing
Agreements,” “Servicing and Administration” and “Description of the Notes” in this
offering memorandum contain descriptions of the material provisions of the transaction
documents.
The notes will represent indebtedness of the trust secured by its assets and the
residual certificate will represent the beneficial ownership interest of the assets of the
trust. The Trust Accounts will be established and maintained in the name of the
indenture trustee for the benefit of the noteholders. To facilitate servicing and to
minimize administrative burden and expense, the subservicer will act as custodian of
the promissory notes representing the trust student loans and other related documents.
The trust’s principal offices are in New York, New York, in care of Deutsche Bank
Trust Company Americas, as eligible lender trustee, at its address shown below.
Capitalization of the Trust
The following table illustrates the capitalization of the trust as of the closing date,
as if the issuance and sale of the notes had taken place on that date:
Floating Rate Class A Student Loan-Backed Notes ................................................
Equity .......................................................................................................................
Total .........................................................................................................................
36
$1,231,596,000
10
$1,231,596,010
Eligible Lender Trustee and Interim Eligible Lender Trustee
The eligible lender trustee and interim eligible lender trustee is Deutsche Bank
Trust Company Americas, a banking association organized under the laws of the State
of New York. Its address is 60 Wall Street, 26th floor, New York, New York 10005, and
its telephone number is (212) 250-4855. Deutsche Bank Trust Company Americas has
been, and currently is, serving as eligible lender trustee for numerous securitization
transactions and programs involving pools of student loan receivables.
Deutsche Bank Trust Company Americas has provided the information in the
prior paragraph. Other than the prior paragraph, Deutsche Bank Trust Company
Americas has not participated in the preparation of, and is not responsible for, any other
information contained in this offering memorandum.
The interim eligible lender trustee will hold legal title to the trust student loans for
the depositor under an interim trust agreement prior to the transfer of the trust student
loans to the eligible lender trustee on behalf of the trust.
The eligible lender trustee will acquire on behalf of the trust legal title to all the
trust student loans purchased on the closing date. The eligible lender trustee, on behalf
of the trust, has entered into separate guarantee agreements with the guaranty
agencies described in this offering memorandum with respect to the trust student loans.
The eligible lender trustee qualifies as an eligible lender and the holder of the trust
student loans for all purposes under the Higher Education Act and the guarantee
agreements. Failure of the trust student loans to be owned by an eligible lender would
result in the loss of guarantor and U.S. Department of Education payments on the trust
student loans. See “Annex C—Federal Family Education Loan Program—Eligible
Lenders, Students and Educational Institutions” attached to this offering memorandum.
The eligible lender trustee will act on behalf of the residual certificateholder and
represent and exercise the rights and interests of the residual certificateholder under the
trust agreement. Except as specifically delegated to the administrator in the
administration agreement, the eligible lender trustee will also execute and deliver all
agreements required to be entered into on behalf of the trust.
The liability of the eligible lender trustee in connection with the issuance and sale
of the notes will consist solely of the express obligations specified in the eligible lender
trust agreement, the trust agreement and the sale agreement. The eligible lender
trustee and the interim eligible lender trustee will not be personally liable for any actions
or omissions that were not the result of its own bad faith, willful misconduct or gross
negligence. The eligible lender trustee and the interim eligible lender trustee will be
entitled to be indemnified by the administrator for any loss, liability or expense (including
reasonable attorneys’ fees and expenses) incurred by it in connection with the
performance of its duties under the eligible lender trust agreement or interim trust
agreement, as applicable, and the other transaction documents, other than any loss,
liability or expense resulting from the gross negligence or bad faith of the eligible lender
37
trustee or interim eligible lender trustee. Affiliates of the depositor maintain customary
banking relations on arm’s-length terms with the eligible lender trustee.
The eligible lender trustee may resign at any time. The administrator may also
remove the eligible lender trustee if it becomes insolvent or ceases to be eligible to
continue as eligible lender trustee. In the event of such a resignation or removal, the
administrator will appoint a successor. The resignation or removal of the eligible lender
trustee and the appointment of a successor will become effective only when a
successor accepts its appointment. To the extent expenses incurred in connection with
the replacement of the eligible lender trustee are not paid by the successor eligible
lender trustee, the depositor will be responsible for the payment of such expenses.
Indenture Trustee and Paying Agent
The trust will issue the notes under an indenture to be dated as of the closing
date. Under the indenture, Deutsche Bank Trust Company Americas will act as
indenture trustee and paying agent for the notes.
Deutsche Bank Trust Company Americas, a banking association organized
under the laws of the State of New York, is the indenture trustee. Its address is 60 Wall
Street, 26th floor, New York, New York 10005. Deutsche Bank Trust Company
Americas has acted as trustee on numerous asset-backed securities transactions
involving pools of student loans.
Deutsche Bank Trust Company Americas has provided the information in the
prior paragraph. Other than the above paragraph, Deutsche Bank Trust Company
Americas has not participated in the preparation of, and is not responsible for, any other
information contained in this offering memorandum.
Affiliates of the depositor maintain customary banking relations on arm’s-length
terms with the indenture trustee.
The indenture trustee will act on behalf of the noteholders and represent their
interests in the exercise of their rights under the indenture, subject to limitations set forth
in the indenture.
To the extent expenses incurred in connection with the replacement of an
indenture trustee are not paid by another party, the depositor will be responsible for the
payment of such expenses.
The indenture trustee will not be personally liable for any actions or omissions
that were not the result of its own bad faith, willful misconduct or negligence. The
indenture trustee will be entitled to be indemnified by the administrator for any loss,
liability or expense (including reasonable attorneys’ fees and expenses) incurred by it in
connection with the performance of its duties under the indenture and the other
transaction documents. Upon the occurrence of an event of default, and in the event
the administrator fails to reimburse the indenture trustee, the indenture trustee will be
38
entitled to receive all such amounts owed from cash flow on the trust student loans prior
to any amounts being distributed to the noteholders.
Delaware Trustee
Wilmington Trust Company will be the Delaware trustee under the trust
agreement. The Delaware trustee will act in the capacities required for a Delaware trust
under the Delaware Statutory Trust Act. Wilmington Trust Company is a Delaware
banking corporation with trust powers that was incorporated in 1903. Wilmington Trust
Company’s principal place of business is located at Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890. Wilmington Trust Company has served as
Delaware trustee for numerous asset-backed securities transactions involving student
loan receivables.
Wilmington Trust Company is subject to various legal proceedings that arise from
time to time in the ordinary course of business. Wilmington Trust Company does not
believe that the ultimate resolution of any of these proceedings will have a materially
adverse effect on its services as Delaware trustee.
Wilmington Trust Company has provided the information in the prior two
paragraphs. Other than the two prior paragraphs, Wilmington Trust Company has not
participated in the preparation of, and is not responsible for, any other information
contained in this offering memorandum.
The liability of the Delaware trustee in connection with the issuance and sale of
the notes will consist solely of the express obligations specified in the trust agreement.
The Delaware trustee will not be personally liable for any actions or omissions that were
not the result of its own willful misconduct or gross negligence. The Delaware trustee
will be entitled to be indemnified by the administrator for any loss, liability or expense
(including reasonable attorneys’ fees and expenses) incurred by it in connection with
the performance of its duties under the trust agreement. See “Description of the Notes”
in this offering memorandum. The depositor and its affiliates maintain customary
banking relations on arm’s-length terms with the Delaware trustee and/or its affiliates.
The Delaware trustee may resign at any time. The administrator may also
remove the Delaware trustee if it becomes insolvent or ceases to be eligible to continue
as Delaware trustee. In the event of such a resignation or removal, the administrator
will appoint a successor. The resignation or removal of the Delaware trustee and the
appointment of a successor will become effective only when a successor accepts its
appointment. To the extent expenses incurred in connection with the replacement of
the Delaware trustee are not paid by the successor Delaware trustee, the depositor will
be responsible for the payment of such expenses.
THE DEPOSITOR
Bank of America Student Loan Securitization Corporation, which is a Delaware
corporation and a wholly owned special purpose subsidiary of BANA, is the depositor.
Its principal address is Bank of America Corporate Center, 100 N. Tryon Street, Mail
39
Code: NC1-007-06-82, Charlotte, North Carolina 28255, and the telephone number is
(980) 387-6838.
The depositor was formed to purchase, receive capital contributions of or
otherwise acquire from time to time student loans of all types and related rights and
assets, to own, hold, sell, assign, pledge or otherwise exercise ownership rights with
respect to the student loans and related rights, to establish issuance trusts including the
issuing entity, to sell securities of one or more issuance trusts, as well as to perform
various related actions.
THE SELLER, SPONSOR, MASTER SERVICER AND ADMINISTRATOR
General
Bank of America, National Association (“BANA”), which is a national banking
association, acts as the seller, sponsor, master servicer and administrator of the Bank
of America student loan securitization program.
BANA is a national banking association organized under the laws of the United
States, with its principal executive offices in Charlotte, North Carolina. BANA is an
indirect, wholly owned subsidiary of Bank of America Corporation (the “Corporation”)
and is engaged in general consumer banking, commercial banking, and trust business,
offering a wide range of commercial, corporate, international, financial market, retail and
fiduciary banking services. As of March 31, 2010, BANA had consolidated assets of
$1.496 trillion, consolidated deposits of $1.001 trillion and stockholder’s equity of
$168 billion based on regulatory accounting principles. BANA is a national banking
association chartered by the Office of the Comptroller of the Currency (the “OCC”) and
is subject to the regulation, supervision and examination of the OCC.
The Corporation is a bank holding company and a financial holding company,
with its principal executive offices located in Charlotte, North Carolina. Additional
information regarding the Corporation is set forth in its annual report on Form 10-K for
the fiscal year ended December 31, 2009, together with any subsequent periodic and
current reports it filed with the SEC pursuant to the Exchange Act.
Moody’s currently rates BANA’s long-term debt as “Aa3” and short-term debt as
“P-1.” The outlook is stable. S&P currently rates BANA’s long-term debt as “A+” and
short-term debt as “A-1.” The outlook is negative. Fitch currently rates BANA’s longterm debt as “A+” and short-term debt as “F1+.” The outlook is stable. Further
information with respect to such ratings may be obtained from Moody’s, S&P and Fitch,
respectively. No assurances can be given that the current ratings of BANA’s
instruments will be maintained.
BANA and its affiliates have been active in the securitization market since its
inception. BANA has sponsored securitization transactions since 1977. BANA and its
affiliates have been involved with the origination and securitization of auto loans, home
equity loans, credit card receivables, manufactured housing contracts, residential
mortgage loans, and commercial mortgage loans, as well as less traditional asset
40
classes. BANA and its affiliates have also participated in a variety of asset-backed
commercial paper programs and other structured finance transactions. BANA and its
affiliates have served as sponsors, issuers, dealers, trustees, servicers and in other
roles in a wide array of securitization transactions.
BANA serves as the sponsor in the depositor’s securitization program, in addition
to being an affiliate of the depositor, BANA will perform certain administrative
obligations on behalf of the issuing entity. BANA will have limited obligations and rights
under the transaction documents, as described in this offering memorandum.
BANA’s headquarters and its executive offices are located at Bank of America
Corporate Center, 100 N. Tryon Street, Mail Code: NC1-007-06-82, Charlotte, North
Carolina 28255, and the telephone number is (980) 387-8696. BANA will also act as
administrator under the administration agreement.
BANA’s Student Loan Financing Business
General
BANA or its predecessors have been in the student lending business for over 30
years and have played an active role in the origination and servicing of student loans
under various federally sponsored programs. BANA has used a number of vendors to
originate these FFELP loans and uses a number of vendors to service these FFELP
loans in accordance with established U.S. Department of Education standards. The
FFELP, under Title IV of the Higher Education Act, provides for loans to students who
are enrolled in eligible institutions, or to parents of dependent students, to finance their
educational costs. Payment of principal and interest on the student loans is guaranteed
by a state or not-for-profit guaranty agency against:
•
default of the borrower;
•
the death, bankruptcy or permanent, total disability of the borrower;
•
closing of the borrower’s school prior to the end of the academic period;
•
false certification by the borrower’s school of his eligibility for the loan; and
•
an unpaid school refund.
See “Annex C—Federal Family Education Loan Program” to this offering
memorandum for a description of the FFELP.
Loan Originations
BANA or its subsidiaries and predecessors have originated both federally
guaranteed student loans and private credit student loans which are not federally
guaranteed. BANA owns approximately $10 billion in student loans as of March 31,
2010, 90% of which are FFELP loans. Since 2000, BANA has disbursed and/or
41
originated over $34 billion, and sold over $20 billion of student loans. BANA was very
active in the sale of its FFELP and private loans through the third quarter of 2008.
Subsequent to this period, BANA moved to a “Make and Hold” scenario as illiquidity in
the capital markets, and changes in economic conditions, worsened and as market sale
pricing became unprofitable.
BANA has participated in the origination of the following types of FFELP loans,
which are insured by guarantors and reinsured by the Department of Education: the
subsidized Federal Stafford, unsubsidized Federal Stafford, Federal Parent Loans to
Undergraduate Students (PLUS), Graduate PLUS and Federal Consolidation loans.
Subsidized Federal Stafford loans are generally made to students who pass certain
need criteria. Unsubsidized Federal Stafford loans are designed for students who do
not qualify for subsidized Federal Stafford loans due to parental and/or student income
and assets in excess of permitted amounts or whose need exceeds the basic Stafford
limit. Federal PLUS loans are made to parents of students who are dependents. The
Federal Consolidation loan program allows multiple federal loans, including those of
both the FFELP and the Federal Direct Student Loan Program, to be combined into a
single new guaranteed FFELP loan with a longer repayment term, fixed interest rate
and a smaller monthly payment. Federal Consolidation Loans may include governmentguaranteed loans formerly held by other lenders. A Federal Consolidation loan is
allowed an extended repayment term of up to 30 years, depending on the loan balance.
A student must attend an eligible educational institution in order to obtain a
FFELP loan. Eligible institutions can be divided into three categories: four-year
colleges and universities, two-year institutions and proprietary (vocational) schools. In
addition to other criteria, school eligibility is determined by the default rate on FFELP
loans to its students. Under the Higher Education Act, eligible lenders, subject to
certain restrictions, may choose not to make loans to students attending certain
schools, defined by school type, geographic location or default experience.
Effective December 5, 2009, BANA suspended the origination of student loans
through the FFELP and no longer accepts applications for new FFELP loans. However,
BANA continues to participate in the FFELP through disbursements on FFELP loans
originated for the 2009-2010 academic year and through managing a substantial
portfolio of FFELP loans.
In addition to FFELP, which has statutory limits on annual and total borrowing,
BANA has offered a variety of private credit student loan programs to bridge the gap
between the cost of education and a student’s resources. Most of these private credit
student loans were supplemental to FFELP Stafford loans, and were distributed
primarily through the same school channels. In the second quarter of 2008, BANA
ceased new private loan originations, and began to concentrate its efforts on its FFELP
loan volume. BANA continues to manage approximately $900 million in private credit
student loan volume and $9 billion in FFELP volume.
42
Origination Process
The U.S. Department of Education and the various guarantors prescribe rules
and regulations which govern the servicing of FFELP loans. Each loan applicant is
evaluated individually using the appropriate U.S. Department of Education underwriting
standards. Each student borrower seeking a Stafford loan or a Graduate PLUS loan,
each parent borrower seeking a PLUS loan, and each student for whom a parent
borrower is seeking a PLUS loan must meet certain eligibility requirements as described
under “Annex C—Federal Family Education Loan Program” to this offering
memorandum.
With respect to loans made under the FFELP, the identity of the actual originator
of any particular student loan is not material, as the requisite underwriting criteria, if any,
are in each case prescribed by provisions of the Higher Education Act or the rules and
regulations promulgated thereunder. The origination and servicing of the student loans
is in accordance with the FFELP, the Higher Education Act, the related guaranty
agency’s rules and other applicable requirements.
Servicing
The U.S. Department of Education and the various guarantors prescribe rules
and regulations which govern the servicing of federally insured loans. These rules and
regulations include specific procedures for contacting delinquent borrowers, locating
borrowers who can no longer be contacted at their documented address or telephone
number, and filing claims for reimbursement on loans in default. Payments under a
guarantor’s guarantee agreement require strict adherence to these stated due diligence
and collection procedures.
BANA utilizes ACS, the subservicer, as a third-party servicing processor. Under
the subservicing agreement, ACS, as subservicer, will agree to service all the trust
student loans. The subservicer is required to perform all services and duties customary
to the servicing of FFELP student loans, including all collection practices. It must use
the same standard of care as it uses to service other similar student loans in
compliance with the applicable guarantee agreements and all other applicable federal
and state laws, including the Higher Education Act.
Consolidation/Repayment Programs
Repayment programs, including FFELP consolidations, made available by BANA
to student loan borrowers will continue to be made available to borrowers with trust
student loans. The transfer and servicing agreements permit originators of FFELP
consolidation loans to purchase student loans from the trust to effect consolidations at
the request of borrowers. We refer you to “Annex C—Federal Family Education Loan
Program” of this offering memorandum.
43
Default Management
Regulations require that collection efforts commence within ten days of any
delinquency and continue for the period of delinquency until the FFELP loan is deemed
to be in default status. During the delinquency period, the holder of the loan must
diligently attempt to contact the borrower, in writing and by telephone, at specified
intervals. Most FFELP loans are considered to be in default when they become 270
days delinquent.
A guarantor may reject any claim for payment under a guarantee agreement if
the specified due diligence and collection procedures required by its guarantee
agreement have not been strictly followed and documented or if the claim is not timely
filed. Minor errors in due diligence may result in the imposition of interest penalties,
rather than a complete loss of the guarantee. In instances in which a claim for payment
under a guarantee agreement is denied due to servicing or claim-filing errors, the
guaranteed status of the affected student loans may be reinstated by following specified
procedures, called “curing the defect.” Interest penalties are commonly incurred on
loans that are cured.
As master servicer, BANA’s internal procedures are designed to facilitate
compliance with existing U.S. Department of Education and guarantor regulations and
reporting requirements. BANA utilizes a computerized loan servicing system which
monitors the student loans serviced by ACS and its loan servicing centers. The ACS
servicing system identifies loans which require due diligence or other servicing
procedures and disseminates the necessary loan information to initiate the servicing or
collection process. ACS has represented that the ACS servicing system enables ACS
to service a high volume of loans in a manner consistent with federal and industry
requirements. BANA, while maintaining operating procedures which comply with
applicable U.S. Department of Education and guarantor regulations and reporting
requirements, performs periodic assessments of ACS’ policies, procedures and
practices for compliance by ACS with the U.S. Department of Education’s guidance and
guarantor regulations. ACS is required to remediate any and all material findings of
noncompliance.
Incentive Programs
BANA or its predecessors have offered, and intend to continue to offer, various
incentive programs to student loan borrowers and cosigners. Some of the programs
that may apply to the trust student loans are:
•
Direct Repay/ACH Benefit plan. Under the Direct Repay/ACH Benefit
plan, borrowers who make student loan payments electronically through
automatic monthly deductions from a savings, or checking account receive
a 0.25% to as much as a 2% effective interest rate reduction as long as
loan payments continue to be successfully deducted from the borrower’s
bank account.
44
•
On Time Reward. Under the On Time Reward program, if a borrower
makes the first 48 consecutive scheduled payments in a timely fashion,
the effective interest rate is reduced permanently by 2%.
•
Bank of America Best. Under the Bank of America Best program, if a
borrower makes the first 48 consecutive scheduled payments in a timely
fashion, the effective interest rate is reduced permanently by 1%.
•
Bank of America Deposit Account Benefit. Under the Bank of America
Deposit Account Benefit, if a borrower submitted his or her application for
processing through a preferred processor of BANA and that borrower had
a Bank of America deposit account open for at least 60 days between the
time of loan disbursement and the date of the first scheduled payment,
then shortly after the borrower’s first scheduled payment is made on time,
the effective interest rate is reduced permanently by 0.25%.
•
Bank of America Consolidation Incentive. Under the Bank of America
Consolidation Incentive, borrowers who make their first 36 scheduled
payments on time receive a 1.0% interest rate reduction.
•
Tiered Rebate Incentive. Under the Tiered Rebate Incentive, if a borrower
makes the first 12 consecutive scheduled payments in a timely fashion,
the principal is reduced by 1%. If a borrower makes the next 12
consecutive scheduled payments in a timely fashion, the principal is
reduced by 1%. If the borrower makes the next 12 consecutive scheduled
payments in a timely fashion, the principal is reduced by an additional 1%
for a maximum total of 3%.
The effect on any trust student loan for which one of these programs is liable will
be borne by the trust. BANA reserves the right to offer other incentive programs to
borrowers in the future to the extent these programs are required or permitted by
applicable law, provided however that BANA, as the master servicer or the depositor,
will be required to compensate the trust in full for any resulting loss in yield on each
applicable trust student loan.
USE OF PROCEEDS
The trust will use the net proceeds of the sale of the notes to make the initial
deposits to the collection account, the capitalized interest account and the reserve
account and to purchase the trust student loans from the depositor on the closing date
under the sale agreement.
The depositor will then use the proceeds paid to the depositor by the trust to pay
to BANA the purchase price due to BANA for the trust student loans purchased by the
depositor under the purchase agreement.
45
Expenses incurred in connection with the acquisition of the trust student loans,
the establishment of the trust (including the expenses of accountants, the initial
purchasers and the Rating Agencies) and the issuance of the notes are payable by
BANA and/or the depositor rather than from the proceeds of the sale of the notes.
Expenses to be paid by the depositor are estimated to be $2,700,000.
THE TRUST STUDENT LOAN POOL
General
The depositor will purchase the trust student loans from BANA under the
purchase agreement on the closing date. The eligible lender trustee, on behalf of the
trust, will purchase the pool of trust student loans from the depositor on the closing date,
and the trust will be entitled to collections on and proceeds of the trust student loans on
and after that date.
Eligible Trust Student Loans
The pool of statistical trust student loans were selected from a portfolio of student
loans owned by BANA by employing several criteria, including requirements, among
others, that each trust student loan as of the statistical cutoff date:
•
is a FFELP loan that is guaranteed as to at least (1) 100% with respect to
trust student loans with an initial date of disbursement prior to October 1,
1993, (2) 98% with respect to trust student loans with an initial date of
disbursement on or after October 1, 1993 and prior to July 1, 2006 or
(3) 97% with respect to trust student loans with an initial date of
disbursement on or after July 1, 2006, of its principal and interest by a
guaranty agency under a guarantee agreement and the guaranty agency
is, in turn, reinsured by the U.S. Department of Education in accordance
with the FFELP;
•
contains terms in accordance with those required by the FFELP, the
guarantee agreements and other applicable requirements;
•
is not more than 210 days past due;
•
is fully disbursed;
•
does not have a borrower who is noted in the related records of the
master servicer or the subservicer as being currently involved in a
bankruptcy proceeding; and
•
has special allowance payments, if any, based on the three-month
commercial paper rate or the 91-day treasury bill rate.
No statistical trust student loan, as of the statistical cutoff date, was subject to
any prior obligation to sell that loan to a third party.
46
FFELP Delinquencies, Defaults, Claims and Net Losses
Information about delinquencies, defaults, guarantee claims and net losses on
FFELP loans is available in the U.S. Department of Education’s Loan Programs Data
Books, called DOE Data Books. The delinquency, default, claim and net loss
experience on this pool of FFELP loans may not be comparable to this information.
The following tables contain information concerning the delinquency, default,
claim and net loss experience on BANA’s total FFELP loan portfolio as well as the
portfolio on BANA’s FFELP loans serviced by ACS. BANA actively pursues the full
balance on all guarantee-rejected FFELP loans. This expected recovery is taken into
account in arriving at BANA’s periodic provision for loan loss expense.
With respect to charge-offs, BANA’s methodology is to charge off the estimated
loss of the rejected guarantee loan balance. Actual Recoveries are applied against the
loan balance that was charged off. Although there is diversity in practice on how
charge-offs are presented, this method is comparable to other financial institutions in
how charge-offs and the related charge-off and allowance ratios are presented.
47
Bank of America, N.A.
FFELP Loans
Total Student Loan Portfolio
Loan Status, Delinquency, and Loan Loss Experience
(dollars in millions)
Qtr
ended
March 31,
Years ended December 31,
2010
2009
2008
2007
2006
2005
1
Total Outstandings
In School
In Grace
In Repayment
$10,167
$5,030
$861
$4,276
$9,791
$4,770
$755
$4,267
$7,439
$4,415
$738
$2,285
$4,095
$3,121
$199
$775
$3,707
$2,821
$238
$648
$3,450
$2,854
$152
$443
2
Total $ in Repayment
Current
Forbearance
Deferment
Delinquent
$4,276
$2,119
$543
$1,102
$510
$4,267
$2,400
$478
$998
$391
$2,285
$1,361
$198
$586
$140
$775
$434
$44
$273
$25
$648
$310
$36
$292
$11
$443
$219
$12
$210
$3
3
Total 30+ Delinquency Dollars
Loans delinquent 30-59 days
Loans delinquent 60-89 days
Loans delinquent 90 days or greater
$510
$124
$108
$278
$391
$115
$67
$208
$140
$53
$22
$65
$25
$7
$2
$15
$11
$3
$2
$6
$3
$2
$0
$1
4
Total 30+ Delinquency Rate
11.94%
9.16%
6.13%
3.19%
1.66%
0.70%
5
Net Charge-Offs ($)
Net Charge-Offs Annualized Rate
(%)
$(0.0)
$0.1
$0.3
$0.1
$0.0
NM
0.00%
0.00%
0.02%
0.01%
0.01%
NM
7
Total Non Credit Loss Expense
$1.1
$1.2
$0.2
$0.0
NM
NM
8
Total Charge-Off Expense ($)
$1.0
$1.2
$0.5
$0.1
NM
NM
9
Total Charge-Off Expense (%)
0.055%
0.066%
0.013%
6
1
2
3
4
5
6
7
8
9
0.024%
NM
NM
Represents the total unpaid principal balance by loan status.
Represents the total unpaid principal balance for loans in repayment.
Represents the total unpaid principal balance for loans at least 30 days past due.
Represents the total unpaid principal balance for loans at least 30 days past due divided by the total unpaid principal balance for loans in
repayment.
An amount equal to gross charge-offs minus repurchase payments received during the reporting period.
Cumulative net charge-off $ divided by average $ in repayment for the period multiplied by 365 divided by number of days in the period.
The loss exposure of the principal balance up to 3% realized on Government loan losses as these losses are non-collectable, per the FFELP
guidelines.
The net charge-off amount (line 5) plus the non credit loss expense (line 7).
The total charge-off expense for end of period divided by the previous period ending dollars in repayment.
48
Bank of America, N.A.
ACS Serviced Portfolio
Total Student Loan Portfolio
Loan Status, Delinquency, and Loan Loss Experience
(dollars in millions)
Qtr ended
March 31,
Years ended December 31,
2010
2009
2008
2007
2006
2005
1
Total Outstandings
In School
In Grace
In Repayment
$6,613
$3,157
$550
$2,906
$6,088
$2,930
$455
$2,703
$4,042
$2,266
$325
$1,451
$1,648
$985
$90
$573
$1,343
$820
$80
$443
$1,104
$833
$63
$208
2
Total $ in Repayment
Current
Forbearance
Deferment
Delinquent
$2,906
$1,490
$378
$693
$344
$2,703
$1,555
$313
$610
$224
$1,451
$860
$117
$400
$75
$573
$284
$38
$229
$23
$443
$168
$31
$234
$9
$208
$55
$5
$146
$2
3
Total 30+ Delinquency Dollars
Loans delinquent 30-59 days
Loans delinquent 60-89 days
Loans delinquent 90 days or greater
$344
$81
$71
$192
$224
$63
$43
$119
$75
$22
$13
$39
$23
$6
$2
$15
$9
$2
$1
$5
$2
$1
$0
$1
4
Total 30+ Delinquency Rate
11.84%
8.30%
5.16%
3.98%
2.06%
0.78%
5
Net Charge-Offs ($)
$(0.07)
$0.0
$0.2
$0.1
$0.1
NM
6
Net Charge-Offs Annualized Rate (%)
(0.01)%
0.00%
0.02%
0.02%
0.02%
NM
7
Total Non Credit Loss Expense
$0.6
$0.8
$0.2
$0.0
NM
NM
8
Total Charge-Off Expense ($)
$0.6
$0.8
$0.4
$0.1
NM
NM
9
Total Charge-Off Expense (%)
0.021%
0.058%
0.068%
0.023%
NM
NM
1
2
3
4
5
6
7
8
9
Represents the total unpaid principal balance by loan status.
Represents the total unpaid principal balance for loans in repayment.
Represents the total unpaid principal balance for loans at least 30 days past due.
Represents the total unpaid principal balance for loans at least 30 days past due divided by the total unpaid principal balance for loans in
repayment.
An amount equal to gross charge-offs minus repurchase payments received during the reporting period.
Cumulative net charge-off $ divided by average $ in repayment for the period multiplied by 365 divided by number of days in the period.
The loss exposure of the principal balance up to 3% realized on Government loan losses as these losses are non-collectable, per the FFELP
guidelines.
The net charge-off amount (line 5) plus the non credit loss expense (line 7).
The total charge-off expense for end of period divided by the previous period ending dollars in repayment.
Characteristics of the Statistical Trust Student Loans
The tables contained in Annex A to this offering memorandum provide a
description of specified characteristics of the statistical trust student loans as of the
statistical cutoff date. The aggregate outstanding principal balance of the statistical
trust student loans in each of the tables in Annex A includes the principal balance due
from borrowers, plus accrued interest to be capitalized of $52,557,222.77 as of the
statistical cutoff date.
49
Unless otherwise specified, all information with respect to the statistical trust
student loans presented in this offering memorandum or in Annex A is as of June 1,
2010, which is the statistical cutoff date. The actual cutoff date for the pool of trust
student loans sold to the trust will be the closing date.
Insurance of Trust Student Loans; Guarantors of Trust Student Loans
In general, disbursed student loans are guaranteed by the applicable guarantor,
and reinsured against default by the U.S. Department of Education. The percentage of
the guarantee is based upon the date of disbursement of the statistical trust student
loans as follows:
Disbursement Date
Prior to October 1, 1993....................................................
On or after October 1, 1993 but before July 1, 2006 ........
On or after July 1, 2006.....................................................
Percentage Guaranteed
100%
98%
97%
The eligible lender trustee has entered into a separate guarantee agreement with
each of the guaranty agencies listed on page A-13 in Annex A to this offering
memorandum, under which each of the guarantors has agreed to guarantee certain of
the trust student loans.
Under the Higher Education Amendments of 1992, if the U.S. Department of
Education has determined that a guaranty agency is unable to meet its insurance
obligations, a loan holder may submit claims directly to the U.S. Department of
Education and the U.S. Department of Education is required to pay the full guarantee
payment in accordance with guarantee claim processing standards no more stringent
than those of the guaranty agency. However, the U.S. Department of Education’s
obligation to pay guarantee claims directly in this fashion is contingent upon the U.S.
Department of Education making the determination referred to above. We cannot
assure you that the U.S. Department of Education would ever make that determination
with respect to a guaranty agency or, if that determination were made, whether that
determination or the ultimate payment of guarantee claims would be made in a timely
manner. See “Annex C—Federal Family Education Loan Program—Guaranty Agencies
under the FFELP” attached to this offering memorandum.
The table on page A-13 of Annex A to this offering memorandum provides
information with respect to the applicable percentage by outstanding principal balance
of the statistical trust student loans guaranteed by each guarantor.
Some historical information about each guaranty agency that guarantee
statistical trust student loans and will guarantee trust student loans comprising at least
10% of the initial Pool Balance is also provided beginning on page A-14 in Annex A
attached to this offering memorandum. For purposes of the tables in Annex A, we refer
to each of these guaranty agencies as a Significant Guarantor.
The U.S. Department of Education is required to make reinsurance payments to
guarantors with respect to FFELP loans in default. This requirement is subject to
50
specified reductions when the guarantor’s claims rate for a fiscal year equals or
exceeds certain trigger percentages of the aggregate original principal amount of
FFELP loans guaranteed by that guarantor that are in repayment on the last day of the
prior fiscal year. See “Annex C—Federal Family Education Loan Program” attached to
this offering memorandum.
Each guaranty agency’s guarantee obligations with respect to any trust student
loan is conditioned upon the satisfaction of all the conditions in the applicable guarantee
agreement. These conditions include, but are not limited to, the following:
•
the origination and servicing of the trust student loan being performed in
accordance with the FFELP, the Higher Education Act, the guaranty
agency’s rules and other applicable requirements;
•
the timely payment to the guaranty agency of the guarantee fee payable
on the trust student loan; and
•
the timely submission to the guaranty agency of all required pre-claim
delinquency status notifications and of the claim on the trust student loan.
Failure to comply with any of the applicable conditions, including those listed
above, may result in the refusal of the guaranty agency to honor its guarantee
agreement on the trust student loan, in the denial of guarantee coverage for certain
accrued interest amounts or in the loss of certain interest subsidy payments and special
allowance payments.
Prospective investors may consult the U.S. Department of Education Data Books
for further information concerning the guarantors.
Cure Period for Trust Student Loans
BANA, the depositor, the master servicer or the subservicer, as applicable, will
be obligated to purchase, or, in the case of BANA, the depositor or the master servicer,
as applicable, to substitute qualified student loans for, any trust student loan in the
event of a material breach of certain representations, warranties or covenants
concerning the trust student loan, following a period during which the breach may be
cured. With respect to the purchase and sale agreements, for purposes of
representations and warranties related to the trust student loans the cure period will be
210 days. However, in the case of breaches that may be cured by the reinstatement of
the guarantor’s guarantee of the trust student loan, the cure period will be 360 days. In
each case the cure period begins on the earlier of the date on which the breach is
discovered and the date of the master servicer’s or subservicer’s receipt of the
guarantor reject transmittal form with respect to the trust student loan. The purchase or
substitution, as applicable, will be made not later than the end of the 210-day cure
period or not later than the 60th day following the end of the 360-day cure period, as
applicable.
51
Notwithstanding the foregoing, if as of the last business day of any month the
aggregate principal amount of trust student loans for which claims have been filed with
and rejected by a guarantor as a result of a breach by the depositor, the master servicer
or the subservicer or for which the master servicer or the subservicer, as applicable,
determines that claims cannot be filed pursuant to the Higher Education Act as a result
of that breach exceeds 1% of the Pool Balance, then the master servicer or the
depositor, as applicable, will be required to purchase, within 30 days of a written request
by the indenture trustee, affected trust student loans in an aggregate principal amount
so that after the purchases the aggregate principal amount of affected trust student
loans is less than 1% of the Pool Balance. The trust student loans to be purchased by
the master servicer or the depositor pursuant to the preceding sentence will be based
on the date of claim rejection, with the trust student loans with the earliest of these
dates to be purchased first. See “Transfer and Servicing Agreements—Purchase of
Student Loans by the Depositor; Representations and Warranties of the Seller” and
“—Sale of Student Loans to the Trust; Representations and Warranties of the
Depositor” and “Servicing and Administration—Master Servicer Covenants” in this
offering memorandum.
Consolidation of Federal Benefit Billings and Receipts and Guarantor Claims with
Other Trusts
Due to a U.S. Department of Education policy limiting the granting of new lender
identification numbers, the eligible lender trustee will be allowed under the trust
agreement to permit other trusts established by the depositor to securitize student loans
to use the U.S. Department of Education lender identification number applicable to the
trust. In that event, the billings submitted to the U.S. Department of Education for
interest subsidy and special allowance payments on loans in the trust would be
consolidated with the billings for the payments for student loans in other trusts using the
same lender identification number and payments on the billings would be made by the
U.S. Department of Education in lump sum form. These lump sum payments would
then be allocated on a loan-by-loan basis among the various trusts using the same
lender identification number.
In addition, the sharing of the lender identification number with other trusts may
result in the receipt of claim payments from guaranty agencies in lump sum form. In
that event, these payments would be allocated among the trusts in a manner similar to
the allocation process for interest subsidy and special allowance payments.
The U.S. Department of Education regards the eligible lender trustee as the party
primarily responsible to the U.S. Department of Education for any liabilities owed to the
U.S. Department of Education or guaranty agencies resulting from the eligible lender
trustee’s activities in the FFELP. As a result, if the U.S. Department of Education or a
guaranty agency were to determine that the eligible lender trustee owes a liability to the
U.S. Department of Education or a guaranty agency on any student loan included in a
trust using the shared lender identification number, the U.S. Department of Education or
that guaranty agency would be likely to collect that liability by offset against amounts
52
due the eligible lender trustee under the shared lender identification number, including
amounts that would otherwise be available to the trust.
In addition, other trusts using the shared lender identification number may in a
given quarter incur consolidation origination fees, consolidation loan rebate fees or floor
income rebates that exceed the interest subsidy and special allowance payments
payable by the U.S. Department of Education on the loans in the other trusts, resulting
in the consolidated payment from the U.S. Department of Education received by the
eligible lender trustee under the lender identification number for that quarter equaling an
amount that is less than the amount owed by the U.S. Department of Education on the
loans in the trust for that quarter.
The master servicing agreement for the trust and the servicing agreements for
any other trusts subsequently established by the depositor that share the lender
identification number to be used by the trust will require any trust, to the extent of
Available Funds, to indemnify the other trusts against a shortfall or an offset by the
U.S. Department of Education or a guaranty agency arising from the trust student loans
held by the eligible lender trustee on the trust’s behalf.
Third-Party Originators of FFELP Loans
With respect to FFELP loans, the identity of the actual originator of any particular
student loan is not material, as the requisite underwriting criteria, if any, are in each
case prescribed by provisions of the Higher Education Act or the rules and regulations
promulgated thereunder.
Termination of the Trust
The trust will terminate upon the earliest of:
•
the maturity or other liquidation of the last trust student loan and the
disposition of any amount received upon its liquidation;
•
the payment of all amounts required to be paid to the noteholders; and
•
the purchase, or the arrangement for the purchase, by the master servicer
of all remaining trust student loans on any distribution date on or after the
first distribution date when the Pool Balance is 10% or less of the initial
Pool Balance, as described under “Description of the Notes—Optional
Purchase” in this offering memorandum.
Upon termination of the trust, any remaining assets of the trust, after giving effect
to final distributions to the noteholders, will be transferred to the reserve account and
paid as provided herein under “Description of the Notes—Credit Enhancement—
Reserve Account.”
53
TRANSFER AND SERVICING AGREEMENTS
General
The following is a summary of the material terms of the purchase agreement
under which the depositor will acquire the trust student loans from BANA, the sale
agreement under which the trust will purchase the trust student loans from the
depositor, the master servicing agreement and the subservicing agreement that provide
for the servicing of the trust student loans, and the administration agreement, which
provides for the administration and management of the trust. We refer to the purchase
agreement, the sale agreement, the master servicing agreement, the subservicing
agreement and the administration agreement collectively as the “transfer and servicing
agreements.” The summary does not cover every detail of these agreements, and it is
subject to the provisions of the transfer and servicing agreements.
Purchase of Student Loans by the Depositor; Representations and Warranties of
the Seller
On the closing date, BANA will sell to the depositor, without recourse, its entire
interest in the trust student loans and all collections received on and after the closing
date, which is the cutoff date for the pool of trust student loans. A schedule to the
purchase agreement will list each trust student loan. The depositor will apply net
proceeds from the sale of the notes to purchase the trust student loans from BANA.
In the purchase agreement, BANA will make representations and warranties
concerning the trust student loans being sold by it. These include, among other things,
that:
•
each student loan is free and clear of all security interests and other
encumbrances and no offsets, defenses or counterclaims have been
asserted or threatened;
•
the information provided about the trust student loans is true and correct in
all material respects as of the cutoff date;
•
each student loan complies in all material respects with applicable federal
and state laws and applicable restrictions imposed by the FFELP or under
any guarantee or insurance agreement; and
•
each student loan is guaranteed by the applicable guarantor and such
guarantee is in full force and effect.
Upon discovery of a breach of any representation or warranty that has a
materially adverse effect on the depositor, BANA, as the seller, will repurchase the
affected student loan unless the breach is cured within the applicable cure period. The
purchase amount will be equal to the amount required to prepay in full that trust student
loan including all accrued interest. Alternatively, rather than repurchasing the trust
54
student loan, BANA may, in its discretion, substitute qualified student loans for that loan.
In addition, BANA will be obligated to reimburse the depositor for:
•
•
the shortfall, if any, between:
•
the purchase amount of the qualified substitute student loans; and
•
the purchase amount of the trust student loans being replaced; and
any accrued interest amounts not guaranteed by, or that are required to
be refunded to, a guarantor and any interest subsidy payments or special
allowance payments lost as a result of the breach.
The repurchase or substitution and reimbursement obligations of BANA
constitute the sole remedy available to the depositor for any uncured breach of BANA’s
representations and warranties. BANA’s repurchase or substitution and reimbursement
obligations are contractual obligations that the depositor or trust may enforce against
BANA, but the breach of these obligations will not constitute an event of default under
the indenture. In cases where the obligations the trust is seeking to enforce are based
on a violation of the Higher Education Act, a finding by the U.S. Department of
Education that the Higher Education Act was violated may be required prior to the trust
or the depositor being able to enforce such obligations.
Sale of Student Loans to the Trust; Representations and Warranties of the
Depositor
On the closing date, the depositor will sell to the eligible lender trustee on behalf
of the trust, without recourse, its entire interest in the trust student loans acquired by the
depositor from BANA, upon which time the eligible lender trustee shall become the legal
owner of, and the trust shall become the beneficial owner of, all of the trust student
loans. Each trust student loan will be listed in a schedule to the sale agreement. The
trust concurrently with that sale will issue the notes. The eligible lender trustee on
behalf of the trust will purchase the trust student loans from the depositor in exchange
for the proceeds from the issuance of the notes and the issuance of the residual
certificate to the depositor.
In the sale agreement, the depositor will make representations and warranties
concerning the trust student loans to the trust for the benefit of noteholders, including
representations and warranties that are substantially the same as those made by BANA
to the depositor in the purchase agreement.
Upon discovery of a breach of any representation or warranty that has a
materially adverse effect on the trust, the depositor will have repurchase or substitution
and reimbursement obligations that are substantially the same as those of BANA in the
purchase agreement.
The repurchase or substitution and reimbursement obligations of the depositor
will constitute the sole remedy available to the noteholders for any uncured breach. The
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depositor’s repurchase or substitution and reimbursement obligations are contractual
obligations that the trust may enforce against the depositor, but the breach of these
obligations will not constitute an event of default under the indenture. In cases where
the obligations the trust is seeking to enforce are based on a violation of the Higher
Education Act, a finding by the U.S. Department of Education that the Higher Education
Act was violated may be required prior to the trust being able to enforce such
obligations.
Custodian of Promissory Notes
To assure uniform quality in servicing and to reduce administrative costs, the
subservicer will act as custodian of the promissory notes, in physical or electronic form,
representing the trust student loans and any other related documents. In acting as
custodian, the subservicer may use its own facilities or those of sub-custodians. The
depositor’s, the master servicer’s and the subservicer’s records will reflect the sale by
BANA of the trust student loans to the depositor and their subsequent sale by the
depositor to the trust.
Amendments to Transfer and Servicing Agreements
The parties to the transfer and servicing agreements may amend them without
the consent of noteholders if, in the opinion of counsel to the trust, the amendment will
not materially and adversely affect the interests of the noteholders. The parties may
also amend the transfer and servicing agreements with the consent of a majority in
interest of noteholders. However, such an amendment may not reduce the percentage
of the notes required to consent to an amendment, without the consent of the holders of
all of the outstanding notes.
SERVICING AND ADMINISTRATION
The following is a summary of the important terms of the servicing agreements
under which the master servicer and the subservicer will service trust student loans and
the administration agreement under which the administrator will undertake
administrative duties for the trust and its trust student loans. This summary does not
cover every detail of these agreements and it is subject to all provisions of the master
servicing and subservicing agreements and the administration agreement.
General
BANA will act as master servicer pursuant to the master servicing agreement.
The master servicer, subject to the limitations on its liability described below and set
forth in the master servicing agreement, will provide for the servicing of the trust student
loans in accordance with the specifications of the Higher Education Act, and as set forth
in the master servicing agreement. The master servicer will be responsible for
overseeing the performance of ACS, as subservicer under a subservicing agreement
pursuant to which ACS will perform the servicing activities with respect to the trust
student loans.
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The Master Servicing Agreement and the Subservicing Agreement
On the closing date, the trust will enter into a master servicing agreement with
the master servicer. The master servicer will be obligated to perform its duties under
the master servicing agreement unless and until:
•
the early termination after material default by the master servicer as provided for
in the master servicing agreement; or
•
the resignation of the master servicer upon a determination that performance of
the servicing duties is impermissible under applicable law.
The master servicer will arrange for and oversee the performance of the
subservicer with respect to the trust student loans. If the master servicer breaches any
covenant under the master servicing agreement with respect to the trust student loans
serviced thereunder, generally it will have to cure the breach, purchase that trust
student loan, substitute that trust loan with a substantially similar loan, or reimburse the
trust for losses resulting from the breach.
The master servicer will be paid a master servicing fee as set forth under
“Description of the Notes—Servicing Compensation” in this offering memorandum.
The master servicer will not perform any of the servicing activities described in
the master servicing agreement. Rather, the subservicer will be responsible for
performance of such servicing duties. Notwithstanding the foregoing, BANA will remain
obligated and be liable to the trust, the eligible lender trustee, the indenture trustee, the
administrator and the noteholders to provide for the servicing of the trust student loans
in accordance with the terms of the master servicing agreement without any decrease in
its obligations and liability by virtue of the appointment of any subservicer and to the
same extent and under the same conditions as if BANA alone were servicing the trust
student loans. Furthermore, BANA is liable for its own as well as the subservicer’s
negligence and willful misconduct in performing the servicing duties.
The master servicing agreement will provide that the master servicer will
indemnify the trust and the eligible lender trustee, and the subservicing agreement will
provide that the subservicer will indemnify the master servicer for losses arising out of
the subservicer’s willful misconduct or negligence with regard to the performance of its
services or the breach of its obligations under the subservicing agreement. The
subservicing agreement also will provide that the subservicer make reasonable efforts
to claim, pursue and collect all guarantee payments with respect to any of the trust
student loans. If any trust student loan is denied its guarantee by a guarantee agency,
the subservicer will act upon the master servicer’s direction as to the disposition of the
account. While the subservicer will not be liable for guarantees rejected due to any
error or omission which occurred prior to the subservicer’s involvement, it will use best
efforts to cure such rejections.
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Servicing Procedures
The master servicer will enter into a subservicing agreement dated as of the
closing date, with ACS Education Services, Inc. Pursuant to this subservicing
agreement, ACS will generally agree to provide all customary student loan servicing
activities with respect to the trust student loans. Such services generally include
maintaining custody of copies of promissory notes and related documentation, billing
and processing payments from borrowers, undertaking certain required collection
activities with respect to delinquent loans, submitting guarantee claims with respect to
defaulted loans, establishing and maintaining records with respect to its servicing
activities, and providing certain reports of its activities and the student loan portfolios
serviced by it. ACS will agree to service the trust student loans in compliance with the
Higher Education Act, the guidelines of the applicable guarantors, and all applicable
federal and state laws and regulations.
The duties of the subservicer, among others, include the following:
•
collecting and depositing into the collection account all payments on the
trust student loans, including claiming and obtaining any FFELP
payments;
•
responding to inquiries from borrowers;
•
attempting to collect delinquent payments; and
•
sending out statements and payment coupons to borrowers.
In addition, the subservicer will keep ongoing records on the loans and its
collection activities in compliance with the applicable guarantee agreements and all
other applicable federal and state laws, including, if applicable, the Higher Education
Act. It will also furnish periodic reports to the administrator, the eligible lender trustee
and the master servicer. In addition, the calculation agent on behalf of the administrator
will furnish statements to the indenture trustee and the eligible lender trustee. See
“—Statements to Indenture Trustee and Trust” below.
The initial term of the subservicing agreement is 10 years; however, such term
will automatically extend for an additional year annually on July 9, 2020 unless either
party provides 90 days written notice of termination prior to the end of any such
extension of the term. The master servicer may terminate the subservicing agreement if
a material breach has occurred by ACS and such breach has not been cured within
thirty (30) days after written notice thereof has been received by ACS, provided,
however, that other than with respect to non-payment of amounts due to the master
servicer, such thirty (30)-day period shall be extended for up to an additional sixty (60)
days if ACS diligently undertakes to cure such breach. ACS may terminate the
subservicing agreement if a material breach has not been cured by the master servicer
(i) within 30 days following written notice thereof if the breach is non-payment of ACS’s
fees, and (ii) within 30 days for any other material breach, which thirty (30)-day period
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shall be extend up to an additional sixty (60) days if the master servicer diligently
undertakes to cure such breach. The master servicer may also terminate the
subservicing agreement without cause at any time upon at least ninety (90) days’ prior
written notice to ACS and payment of a deconversion fee.
ACS may amend the subservicing agreement if, in ACS’s reasonable
determination, changes in any current or future law, regulation or other requirement
applicable to the loans it services under the subservicing agreement expose ACS to a
materially increased risk of liability to certain parties, impose materially increased duties
or obligations upon ACS, cause ACS to incur additional material expenses or materially
restrict or derogate from ACS’s indemnification rights or limits of liability and ACS may
terminate the subservicing agreement if ACS and the Master Servicer fail to reach an
agreement with respect to such proposed amendment. Additionally, the master servicer
may terminate the subservicing agreement if ACS announces or actually commences a
wind-down of its servicing activities.
The master servicer will pay ACS a monthly fee for the servicing of trust student
loans according to schedules set forth in the subservicing agreement which fee is
subject to periodic adjustment.
Pursuant to the subservicing agreement, ACS is entitled to cure any errors or
omissions in the performance of its duties under the subservicing agreement by
reperformance of such duties to the extent such reperformance will reasonably
eliminate or mitigate losses to the master servicer and the trust. The subservicing
agreement further provides that ACS shall not be liable in the performance of services
except for willful misconduct or gross negligence and then only to the extent of (i)
principal and interest on rejected claims if ACS’s conduct causes a loan to be
uncollectible or a guarantee to be rejected, or (ii) an amount not to exceed ACS’s
aggregate revenue from monthly servicing revenues during the first 12 months.
Under the subservicing agreement, ACS is not liable for its failure to comply with
any law, rule, regulation or other requirement applicable to any trust student loans which
was not articulated in writing and actually made known to ACS, which is inconsistent
with industry practice or prior guarantor conduct or during any period in which the U.S.
Department of Education and/or any guarantor shall have indicated that it will not
enforce such requirement. ACS is not liable for any incidental, indirect, special, punitive
or consequential damages or for failure to provide services because of reasons beyond
its control. ACS is not liable for any violation of the subservicing agreement where
ACS’s action or inaction was not negligent, for any losses, liabilities or expenses arising
from or relating to guarantor error, for any losses, liabilities or expenses arising from
electronic data interchange failure not directly related to ACS’s negligence or willful
misconduct, or for the uncollectibility or non-payment with respect to accounts serviced
under the subservicing agreement or the failure of a guarantor to pay any claim except
where such uncollectibility or failure is a direct result of ACS’s negligence or willful
misconduct.
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In certain circumstances the master servicer is required to indemnify ACS for all
claims made or threatened by third parties, including all related damages, losses,
liabilities and reasonable expenses, to the extent such claims and damages arise out of
or relate to the master servicer’s negligence or willful misconduct. In certain
circumstances, ACS is required to indemnify the master servicer for all claims made or
threatened by third parties, including all related damages, losses, liabilities and
reasonable expenses, to the extent such claims and damages arise out of or relate to
ACS’s negligence or willful misconduct.
Payments on Trust Student Loans
The subservicer will generally deposit all payments on the trust student loans and
proceeds that it collects during each collection period into the collection account within
two business days of receipt. The master servicer will deposit all interest subsidy
payments and all special allowance payments on the trust student loans that it receives
for each collection period into the collection account within two business days of receipt.
A business day for this purpose is any day other than a Saturday, a Sunday, or a
day on which banking institutions or trust companies in the City of New York are
authorized or obligated by law, regulation or executive order to remain closed.
The depositor and the master servicer will pay the aggregate purchase amount of
trust student loans repurchased by the depositor or purchased by the master servicer or
the subservicer to the indenture trustee, and the indenture trustee will deposit these
amounts into the collection account on or before the business day preceding each
distribution date.
The servicing agreements will not require the master servicer or the subservicer
to make advances to the trust and no such advances have been made by the master
servicer or the subservicer with respect to any trust student loans.
Master Servicer Covenants
The master servicer will agree to cause the subservicer, among others:
•
to satisfy all of its obligations relating to the trust student loans, maintain in
effect all qualifications required in order to service the loans and comply in
all material respects with all requirements of law;
•
not to permit any rescission or cancellation of a trust student loan except
as ordered by a court of competent jurisdiction or governmental authority
or as otherwise consented to by the eligible lender trustee or the indenture
trustee;
•
to do nothing to impair the rights of the noteholders in the trust student
loans; and
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•
not to reschedule, revise, defer or otherwise compromise payments due
on any trust student loan except during any applicable interest only,
deferment or forbearance periods or otherwise in accordance with the
same standards and practices that are customary for the servicing of other
FFELP loans serviced by ACS.
Upon the discovery of a breach of any covenant that has a materially adverse
effect on the interest of the trust, the master servicer will purchase the related trust
student loan unless the breach is cured within the applicable cure period specified
herein. See “Transfer and Servicing Agreements—Servicing Procedures” in this
offering memorandum. However, any breach that relates to compliance with the
requirements of the Higher Education Act or the applicable guarantor but that does not
affect that guarantor’s obligation to guarantee payment of a trust student loan will not be
considered to have a material adverse effect. In addition, a finding by the U.S.
Department of Education that the Higher Education Act was violated or that a loan is no
longer insured because of a violation of the Higher Education Act may be required prior
to the trust being able to enforce the agreement.
The purchase price paid by the master servicer will equal the unpaid principal
amount of the related trust student loan plus any accrued interest. The purchase price
will also be calculated using the applicable percentage that would have been insured
pursuant to Section 428(b)(1)(G) of the Higher Education Act plus any interest subsidy
payments or special allowance payments not paid by, or required to be refunded to, the
U.S. Department of Education for that trust student loan as a result of a breach of any
covenant of the master servicer. The trust’s interest in that purchased trust student loan
will be assigned to the master servicer, the subservicer or its designee, as applicable.
Alternatively, rather than purchase the trust student loan, the master servicer may, in its
sole discretion, substitute qualified student loans.
In addition, the master servicer will be obligated to reimburse the trust for:
•
•
the shortfall, if any, between:
•
the purchase amount of the qualified substitute trust student loans;
and
•
the purchase amount of the trust student loans being replaced; and
any accrued interest amounts not guaranteed by, or that are required to
be refunded to, a guarantor and any interest subsidy payments or special
allowance payments lost as a result of a breach.
The purchase or substitution and/or reimbursement obligations of the master
servicer or subservicer, as applicable, will constitute the sole remedy available to the
trust for any uncured breach of a covenant that has a materially adverse effect on the
interest of the trust. The master servicer’s purchase or substitution and reimbursement
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obligations are contractual obligations that the trust may enforce, but the breach of
these obligations will not constitute an event of default under the indenture.
Servicing Compensation
The master servicer will receive a servicing fee as described below under
“Description of the Notes—Servicing Compensation.” The servicing fee, including any
unpaid amounts from prior distribution dates, will have a payment priority over the
notes.
Evidence as to Compliance
The master servicing agreement will require the master servicer and every
subservicer to engage a firm of independent public accountants to furnish to the trust,
the indenture trustee, the eligible lender trustee and the administrator an annual report
attesting to the certification by the master servicer or subservicer, as applicable, as to
the compliance assessments described in the master servicing agreement. The
accounting firm will base its report on its examination of various documents and records
and on appropriate accounting and auditing procedures.
The master servicing agreement will require the master servicer and each
subservicer to deliver to the trust, indenture trustee and eligible lender trustee,
concurrently with the compliance report, a certificate signed by an authorized officer of
such servicer stating that, to his knowledge, such servicer has fulfilled its obligations
under the applicable servicing agreement. If there has been a material default, the
officer’s certificate for that period will describe the default. The master servicer has
agreed to give the indenture trustee or eligible lender trustee, as applicable, notice of
servicer defaults under the master servicing agreement or the subservicing agreement.
Noteholders may obtain copies of these reports and certificates by a request in
writing to the indenture trustee.
Matters Regarding the Master Servicer
The master servicing agreement will provide that the master servicer is an
independent contractor and that, except for the services to be performed under the
master servicing agreement, the master servicer does not hold itself out as an agent of
the trust. The master servicing agreement will provide that the master servicer may not
resign from its obligations and duties as master servicer unless its performance of these
duties is no longer legally permissible. No resignation will become effective until the
indenture trustee or a successor master servicer has assumed the master servicer’s
duties. The master servicing agreement will provide, however, that the master servicer
may assign its obligations under the master servicing agreement to any entity into which
the master servicer may be merged or consolidated, or any entity resulting from any
merger or consolidation to which the administrator is a party, or any entity succeeding to
the business of the administrator, and in each case shall provide notice of such
assignment to the rating agencies then rating the notes.
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All expenses related to the resignation or removal for cause of any master
servicer will be paid solely by the master servicer being replaced.
The master servicing agreement will further provide that neither the master
servicer nor any of its directors, officers, employees or agents will be under any liability
to the trust or to noteholders for taking or not taking any action under the master
servicing agreement, or for errors in judgment. However, the master servicer will not be
protected against:
•
its obligation to purchase trust student loans from the trust as required in
the master servicing agreement or to pay to the trust the amount of any
program payment which a guarantor or the U.S. Department of Education
refuses to pay, or requires the trust to refund, as a result of the master
servicer’s actions; or
•
any liability that would otherwise be imposed by reason of willful
misconduct or gross negligence in the performance of the master
servicer’s duties.
In addition, the master servicing agreement will provide that the master servicer
is under no obligation to appear in, prosecute or defend any legal action where it is not
named as a party.
Servicer Default
A servicer default under the master servicing agreement will consist of:
•
any failure to make or cause the subservicer to make deposits into the
Trust Accounts of any required payment that continues for five business
days after the master servicer receives written notice of such failure from
the indenture trustee, the eligible lender trustee or the administrator;
•
any failure in the observance or performance in any material respect of
any other term, covenant or agreement in the master servicing agreement
that materially and adversely affects the rights of noteholders and
continues for 60 days after written notice of such failure is given (1) to the
master servicer by the indenture trustee or eligible lender trustee or (2) to
the master servicer, the indenture trustee and the eligible lender trustee by
holders of not less than 50% of the outstanding principal amount of the
notes;
•
the occurrence of an insolvency event involving the master servicer;
•
any failure to comply with any requirements under the Higher Education
Act resulting in a loss of eligibility as a third-party servicer; and
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•
any failure by the master servicer or the subservicer to deliver any
information, report or notice as required under the master servicing
agreement which continues unremedied for 15 calendar days after the
date on which such information, report or notice was required to be
delivered.
An insolvency event is a voluntary or involuntary bankruptcy filing, the ordering of
a winding-up or liquidation of the debtor’s affairs, the appointment or selection of a
receiver or similar individual to assign the debtor’s property for the benefit of creditors,
or the inability of the debtor to pay its obligations.
A master servicer default does not include any failure by the subservicer to
service a trust student loan in accordance with the Higher Education Act so long as the
master servicer is in compliance with its obligations under the master servicing
agreement to purchase any adversely affected trust student loans and to cause to be
paid to the trust the amount of any program payments lost as a result of such failure.
Rights Upon Master Servicer Default
As long as a master servicer default remains unremedied, the indenture trustee
or holders of not less than 50% of the outstanding principal amount of the notes may
terminate all the rights and obligations of the master servicer. Only the indenture
trustee or the noteholders and not the eligible lender trustee will have the ability to
remove the master servicer if a default occurs while the notes are outstanding.
Following a termination, a successor master servicer appointed by the indenture trustee
or the indenture trustee itself will succeed to all the responsibilities, duties and liabilities
of the master servicer under the master servicing agreement and will be entitled to
similar compensation arrangements. The compensation may not be greater than the
servicing compensation to the master servicer under the master servicing agreement,
unless the compensation arrangements will not result in a downgrading or withdrawal of
the ratings then applicable to the notes. If the indenture trustee is unwilling or unable to
act, it may appoint, or petition a court for the appointment of, a successor whose regular
business includes the servicing of student loans. If, however, a bankruptcy trustee or
similar official has been appointed for the master servicer, and no servicer default other
than that appointment has occurred, the trustee may have the power to prevent the
indenture trustee or the noteholders from effecting the transfer.
Waiver of Past Defaults
The holders of not less than 50% of the outstanding principal amount of the notes
in the case of any servicer default which does not adversely affect the indenture trustee
or the noteholders may, on behalf of all noteholders, waive any master servicer default,
except a default in making any required deposits to or payments from any of the trust
accounts. Therefore, the noteholders have the ability, except as noted, to waive
defaults by the master servicer which could materially and adversely affect the holder of
the residual certificate. No waiver will impair the noteholders’ rights as to subsequent
defaults.
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Custody of the Student Loan Promissory Notes
ACS will act as custodian of the trust student loans. ACS agrees to store, protect
and retain promissory notes and other collateral documents for serviced trust student
loans in a locked, secure place on its premises. Original promissory notes will be
released to the indenture trustee on written instruction (or at the written direction of the
trust, with the consent of the indenture trustee).
Description of Subservicer
ACS will act as a subservicer for the trust. ACS is a for-profit corporation and a
wholly-owned subsidiary of Xerox Corporation (“Xerox”). Headquartered in Norwalk,
Connecticut, Xerox is a Fortune 500 company providing document technology, services,
software and supplies for production and office environments, as well as business
process and technology outsourcing solutions to world-class commercial and
government clients. Xerox’s common stock trades on the New York Stock Exchange
under the symbol “XRX”. ACS has its headquarters at One World Trade Center, Suite
2200, Long Beach, California 90831, and has regional processing centers in Long
Beach and Bakersfield, California; Utica, New York; Lombard, Illinois; Canyon, Texas;
and Aberdeen, South Dakota.
ACS’s Guaranteed Loan Servicing Group is operated as an independent, third
party education loan servicer with approximately 1,000 employees, providing full service
loan origination and servicing for the Federal Stafford, PLUS and Consolidation
education loan programs and many alternative/private loan programs. ACS and its
predecessors have over 42 years of experience providing outsourcing services to higher
education. As of May 2010, the Guaranteed Loan Servicing Group of ACS currently
services approximately 4.1 million education loan accounts with loans valued at
approximately $56 billion.
The preceding two paragraphs have been furnished by ACS for use in this
offering memorandum. ACS does not guarantee or make any representation as to the
accuracy or completeness thereof or as to the absence of any material adverse change
in such information or in the condition of ACS subsequent to the date hereof.
The Administration Agreement and the Calculation Agent Agreement
Bank of America, National Association, as administrator, will enter into an
administration agreement with the trust, the depositor, the master servicer, the eligible
lender trustee and the indenture trustee. Under the administration agreement, the
administrator will agree to provide various notices and to perform other administrative
obligations required by the indenture, trust agreement and sale agreement, which
services include, among other things:
•
causing the calculation agent to direct the indenture trustee to make the
required distributions from the Trust Accounts on each monthly servicer
payment date and each distribution date;
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•
causing the calculation agent to prepare, based on periodic data received
from the subservicer, and provide quarterly distribution statements to the
eligible lender trustee and the indenture trustee; and
•
providing the notices and performing other administrative obligations
required by the indenture, the trust agreement and the sale agreement.
The administrator will enter into a calculation agent agreement, dated as of the
closing date, with ACS-AMG, as calculation agent, the trust, the depositor and the
master servicer, pursuant to which ACS-AMG, in its capacity as calculation agent, will
assume responsibility for calculating the deposits into the various Trust Accounts and
calculating the deposits and distributions described under “Description of the Notes—
Distributions—Quarterly Distributions from the Collection Account” in this offering
memorandum. The administrator may terminate the calculation agent agreement at any
time upon ninety (90) days prior written notice. The calculation agent may terminate the
agreement upon a material breach by the administrator that is not cured within thirty
(30) to sixty (60) days after written notice, or non-payment of amounts owed to the
calculation agent that continues more than thirty (30) days after written notice.
As compensation, the administrator and the calculation agent will each receive
the administration fee specified below under “Description of the Notes—Administration
Fee.” The administration agreement will provide that the administrator may not resign
from its obligations and duties as administrator unless its performance of these duties is
no longer legally permissible. Such resignation shall not be effective until the
appointment and acceptance of a successor administrator. Upon receiving such notice
of resignation, the trust must promptly appoint a successor administrator. If at any time
the administrator (i) fails to duly perform or observe in any material respect any of its
covenants or agreements under the administration agreement or breaches a
representation or warranty in the transaction documents, in each case which failure
materially and adversely affects the rights of the issuing entity and the noteholders and
continues unremedied for ninety (90) days or (ii) is adjudged bankrupt or insolvent, then
the issuing entity may remove the administrator.
The administration agreement will provide that the administrator may not assign
its obligations under the administration agreement, except to an entity into which the
master servicer may be merged or consolidated, or an entity resulting from any merger
or consolidation to which the administrator is a party, or an entity succeeding to the
business of the administrator, and in each case shall provide notice of such assignment
to the rating agencies then rating the notes.
All expenses related to the resignation or removal for cause of any administrator
will be paid solely by the administrator being replaced.
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Administrator Default
An administrator default under the administration agreement will consist of:
•
any failure by the administrator to deliver to the indenture trustee for
deposit any required payment by the business day preceding any monthly
servicer payment date or distribution date, if the failure continues for five
business days after the earlier of notice or discovery;
•
any failure by the administrator to direct or cause the calculation agent to
direct the indenture trustee to make any required distributions from any of
the Trust Accounts on any monthly servicer payment date or any
distribution date, if the failure continues for five business days after the
earlier of notice or discovery; and
•
any failure by the administrator to observe or perform in any material
respect any other term, covenant or agreement in an administration
agreement that materially and adversely affects the rights of noteholders
and continues for 60 days after written notice of the failure is given:
(1)
to the administrator by the indenture trustee or the eligible lender
trustee, or
(2)
to the administrator, the indenture trustee or the eligible lender
trustee, by holders of no less than 50% of the outstanding principal
amount of the notes; and
the occurrence of an insolvency event involving the administrator.
Rights Upon Administrator Default
As long as any administrator default has not been remedied, the indenture
trustee or holders of not less than 50% of the outstanding principal amount of the notes,
may terminate all the rights and obligations of the administrator. Only the indenture
trustee or the noteholders and not the eligible lender trustee may remove the
administrator if an administrator default occurs while the notes are outstanding.
Following the termination of the administrator, a successor administrator appointed by
the indenture trustee or the indenture trustee itself will succeed to all the responsibilities,
duties and liabilities of the administrator under the administration agreement. The
successor will be entitled to a similar compensation arrangement as the administrator.
If, however, a bankruptcy trustee or similar official has been appointed for the
administrator, and no other administrator default other than that appointment has
occurred, that trustee or official may have the power to prevent the indenture trustee or
the noteholders from removing the administrator and appointing a successor
administrator. If the indenture trustee is unwilling or unable to act, it may appoint, or
petition a court for the appointment of, a successor whose regular business includes the
servicing or administration of trust student loans. The indenture trustee may make
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arrangements for compensation to be paid, which cannot be greater than the
compensation to the administrator, unless the compensation arrangements will not
result in a downgrading or withdrawal of the ratings then applicable to the notes.
Statements to Indenture Trustee and Trust
Before each distribution date, the administrator will prepare and provide a
statement to the indenture trustee and the eligible lender trustee as of the end of the
preceding collection period. The statement will include, in general:
•
any material modifications, extensions or waivers to the terms of the trust
student loans, fees, penalties or payments during the related collection
period or that cumulatively become material over time; and
•
any material breaches of representations and warranties regarding the
trust student loans or if any applicable triggers or asset tests are then in
effect.
The administrator will also cause the calculation agent to prepare and provide,
before each distribution date, a statement to the indenture trustee and the eligible
lender trustee as of the end of the preceding collection period. The statement will
include, in general:
•
the Principal Distribution Amount for the notes;
•
the Interest Distribution Amount for the notes and the applicable
interest rate;
•
the Pool Balance at the beginning and at the end of the preceding
collection period;
•
the outstanding principal amount and the note pool factor for the notes for
that distribution date;
•
the primary servicing fee and the administration fee for that collection
period;
•
the interest rate, if available, for the next period for the notes or the
website where that rate may be found;
•
the amount of any aggregate Realized Losses for that collection period;
•
the amount of any Note Interest Shortfall and note principal shortfall, if
applicable, for the notes, and any changes in these amounts from the
preceding statement;
•
the amount of any carryover servicing fee for that collection period;
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•
the amount of any Note Interest Shortfall carried over from the previous
collection period, if applicable, for the notes, and any change in this
amount from the preceding statement;
•
the aggregate purchase amounts for any trust student loans repurchased
by the depositor, the master servicer or the seller from the trust in that
collection period;
•
the balance of trust student loans that are delinquent in each delinquency
period as of the end of that collection period;
•
the balance of the reserve account and the capitalized interest account,
after giving effect to changes in such balances on that distribution date;
and
•
amounts distributed to the holders of the residual certificate and the uses
of Available Funds to the extent not otherwise set forth above.
Evidence as to Compliance
The administration agreement will provide that a firm of independent public
accountants will furnish to the trust, the eligible lender trustee and the indenture trustee
an annual report attesting to the administrator’s compliance with the terms of the
administration agreement, including all statutory provisions incorporated in the
agreement. The accounting firm will base this report on its examination of various
documents and records and on accounting and auditing procedures considered
appropriate under the circumstances.
The administration agreement will require the administrator to deliver to the trust,
the eligible lender trustee and the indenture trustee, concurrently with each compliance
report, a certificate signed by an authorized officer of the administrator stating that, to
his knowledge, the administrator has fulfilled its obligations under the administration
agreement. If there has been a material default the officer’s certificate will describe the
default. The administrator will agree to give the indenture trustee and eligible lender
trustee notice of administrator defaults under the administration agreement.
You may obtain copies of these reports and certificates by a request in writing to
the administrator.
Description of Calculation Agent
ACS Asset Management Group, Inc. (“ACS-AMG”), an Oregon corporation and a
wholly-owned subsidiary of ACS Education Services, Inc., provides master servicing,
servicing administration and administration services for student loans in a variety of
financing transactions. As of April 2010, ACS-AMG acts as successor or backup
master servicer, servicing administrator or administrator for transactions involving loan
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portfolios of approximately $5.1 billion. ACS-AMG has its headquarters at One World
Trade Center, Suite 2200, Long Beach, California 90831.
DESCRIPTION OF THE NOTES
The Indenture
The notes will be issued and secured under an indenture entered into by the
trust, the indenture trustee and the eligible lender trustee. The following summary
describes the important terms of the notes and the indenture. It does not cover every
detail of the notes or the indenture and is subject to all of the provisions of the notes, the
indenture and the trust agreement.
Modification of Indenture. With the consent of the holders of a majority of the
affected notes, the indenture trustee and the eligible lender trustee may execute a
supplemental indenture to add, change or eliminate any provisions of the indenture or to
modify the rights of such noteholders.
However, without the consent of the holder of each affected note, no
supplemental indenture will:
•
change the due date of any installment of principal of or interest on any
note or reduce any note’s principal amount or interest rate;
•
change the provisions of the indenture relating to the application of
collections on, or the proceeds of the sale of, the trust student loans to
payment of principal of or interest on the notes;
•
change the place of payment or the payment currency for any note;
•
impair the right to institute suit for the enforcement of provisions of the
indenture regarding payment;
•
reduce the percentage of outstanding notes whose holders must consent
to any supplemental indenture;
•
reduce the percentage of outstanding notes whose holders must consent
to a sale or liquidation of the trust student loans if the proceeds of the sale
would be insufficient to pay the principal amount and accrued interest on
the notes;
•
modify the provisions of the indenture which specify the applicable
percentages of the outstanding principal amount of notes necessary to
take specified actions except to increase these percentages or to specify
additional provisions;
•
modify any of the provisions of the indenture to affect the calculation of
interest or principal due on any note on any distribution date; or
70
•
permit the creation of any lien ranking prior or equal to the lien of the
indenture on any of the collateral for that series or, except as otherwise
permitted or contemplated in that indenture, terminate the lien of the
indenture on any collateral or deprive the holder of any note of the security
afforded by that lien.
The trust and the indenture trustee may also enter into supplemental indentures,
without the consent of noteholders, for the purpose of adding, changing or eliminating
any provisions of the indenture or of modifying the rights of noteholders, so long as such
action will not, in the opinion of counsel to the trust, adversely affect in any material
respect the interest of any noteholder.
Events of Default; Rights Upon Event of Default. An “event of default” under the
indenture will consist of the following:
•
a default for five business days or more in the payment of any interest on
any note after it is due;
•
a default in the payment of the principal of any note at maturity;
•
a default in the performance of any covenant or agreement of the trust in
the indenture, or a material breach of any representation or warranty
made by the trust in the indenture or in any certificate, if the default or
breach has a material adverse effect on the holders of the notes and is not
cured within 30 days after notice by the indenture trustee or by holders of
at least 25% in principal amount of the outstanding notes; or
•
the occurrence of an insolvency event involving the trust.
The amount of principal required to be distributed to holders of the notes on any
distribution date will generally be limited to amounts available after payment of interest
and all other prior obligations of the trust. Therefore, the failure to pay principal on the
notes generally will not result in the occurrence of any event of default until the final
scheduled distribution date for the notes.
If an event of default occurs and is continuing, the indenture trustee or holders of
a majority of the outstanding principal amount of the notes may declare the principal of
all of the notes to be immediately due and payable. This declaration may, under certain
circumstances, be rescinded by the holders of a majority of the outstanding principal
amount of the notes.
If the notes have been declared to be due and payable following an event of
default, the indenture trustee may, in its discretion,
•
exercise remedies as a secured party against the trust student loans and
other assets of the trust that are subject to the lien of the indenture;
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•
sell the trust student loans and other assets of the trust; provided, that
none of BANA, the depositor or any of their respective affiliates may bid
an amount greater than the fair value of such assets; or
•
elect to have the eligible lender trustee maintain ownership of the trust
student loans and continue to apply collections on them as if there had
been no declaration of acceleration of the maturity of the notes.
However, the indenture trustee may not sell the trust student loans and other
properties following an event of default, other than a default in the payment of any
principal at maturity or a default for five days or more in the payment of any interest,
unless:
•
the holders of all of the outstanding notes consent to the sale;
•
the proceeds of the sale are sufficient to pay in full the principal and
accrued interest on the outstanding notes at the date of the sale; or
•
the indenture trustee determines that the collections would not be
sufficient on an ongoing basis to make all payments on the notes as the
payments would have become due if the notes had not been declared due
and payable, and the indenture trustee obtains the consent of the holders
of 66 2/3% of the outstanding principal amount of the notes.
Subject to the provisions of the indenture relating to the duties of the indenture
trustee, if an event of default occurs and is continuing, the indenture trustee will be
under no obligation to exercise any of its rights or powers at the request or direction of
any of the holders of the notes, if the indenture trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which it might incur in
complying with their request. Subject to the provisions for indemnification and
limitations contained in the indenture, the holders of a majority of the outstanding
principal amount of the notes will have the right to direct the time, method and place of
conducting any proceeding or any remedy available to the indenture trustee and may, in
certain cases, waive any default, except a default in the payment of principal or interest
or a default under a covenant or provision of the indenture that cannot be modified
without the waiver or consent of all the holders of the outstanding notes.
No holder of the notes will have the right to institute any proceeding with respect
to the indenture, unless:
•
the holder previously has given to the indenture trustee written notice of a
continuing event of default;
•
the holders of not less than 25% of the outstanding principal amount of the
notes, have requested in writing that the indenture trustee institute a
proceeding in its own name as indenture trustee;
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•
the holder or holders have offered the indenture trustee reasonable
indemnity;
•
the indenture trustee has for 60 days after receipt of notice failed to
institute the proceeding; and
•
no direction inconsistent with the written request has been given to the
indenture trustee during the 60-day period by the holders of a majority of
the outstanding principal amount of the notes.
In addition, the indenture trustee and the noteholders will covenant that they will
not at any time institute against the trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
The indenture trustee, BANA, the depositor, the administrator, the master
servicer, the eligible lender trustee, the noteholders and their owners, beneficiaries,
agents, officers, directors, employees, successors and assigns will not be liable for the
payment of the principal of or interest on the notes or for the agreements of the trust
contained in the indenture.
Certain Covenants. The indenture will provide that the trust may not consolidate
with or merge into any other entity, unless:
•
the entity formed by or surviving the consolidation or merger is organized
under the laws of the United States, any state or the District of Columbia;
•
the surviving entity expressly assumes the trust’s obligation to make due
and punctual payments on the notes and the performance or observance
of every agreement and covenant of the trust under the indenture;
•
no default will occur and be continuing immediately after the merger or
consolidation;
•
the trust has been advised that the ratings then applicable to the notes
would not be reduced or withdrawn as a result of the merger or
consolidation; and
•
the trust has received opinions of federal and Delaware tax counsel that
the consolidation or merger would have no material adverse U.S. federal
or Delaware state tax consequences to the trust or to any holder of the
notes.
The trust will not:
•
except as expressly permitted by the indenture, the transfer and servicing
agreements or other related documents, sell, transfer, exchange or
otherwise dispose of any of the assets of the trust;
73
•
claim any credit on or make any deduction from the principal and interest
payable on the notes, other than amounts withheld under the Code or
applicable state law, or assert any claim against any present or former
holder of notes because of the payment of taxes levied or assessed upon
the trust;
•
except as contemplated by the indenture and the related documents,
dissolve or liquidate in whole or in part;
•
permit the validity or effectiveness of the indenture to be impaired or
permit any person to be released from any covenants or obligations under
the indenture, except as expressly permitted by the indenture; or
•
permit any lien, charge or other encumbrance to be created on the assets
of the trust, except as expressly permitted by the indenture and the related
documents.
The trust may not engage in any activity other than as specified under “Formation
of the Trust—The Trust” above in this offering memorandum. In addition, the trust will
not incur, assume or guarantee any indebtedness other than indebtedness evidenced
by the notes and the indenture, except as permitted by the indenture and the related
documents.
Indenture Trustee’s Annual Report. The indenture trustee will be required to mail
all noteholders a brief annual report relating to, among other things, any changes in its
eligibility and qualification to continue as the indenture trustee under the indenture, any
amounts advanced by it under the indenture, the amount, interest rate and maturity date
of indebtedness owing by the trust to the indenture trustee in its individual capacity, the
property and funds physically held by the indenture trustee as such and any action
taken by it that materially affects the notes and that has not been previously reported.
Satisfaction and Discharge of Indenture. The indenture will be satisfied and
discharged when the indenture trustee has received for cancellation all of the notes or,
with certain limitations, when the indenture trustee receives funds sufficient for the
payment in full of all of the notes.
Insolvency Events
The trust agreement will provide that the eligible lender trustee may commence a
voluntary bankruptcy proceeding relating to the trust only with the unanimous prior
approval of all noteholders of the outstanding notes. In order to commence a voluntary
bankruptcy, all noteholders must deliver to the eligible lender trustee a certificate
certifying that they reasonably believe the trust is insolvent.
74
Form and Denomination of the Notes
Book-Entry Registration
Initially, the notes will be issued in book-entry format in minimum denominations
of $100,000 and $1,000 in excess thereof. Notes offered and sold to a QIB pursuant to
Rule 144A will be represented by one or more Rule 144A Global Notes. Notes offered
and sold in reliance on Regulation S will be represented by one or more Regulation S
Global Notes. Rule 144A Global Notes and Regulation S Global Notes are collectively
referred to in this offering memorandum as “Global Notes.”
The Global Notes will be deposited upon issuance with a custodian for DTC, in
New York, New York and will be registered in the name of Cede & Co., as nominee for
DTC, in each case for credit to an account of a direct or indirect participant of DTC as
described below. Beneficial interests in Rule 144A Global Notes may not be exchanged
for interests in Regulation S Global Notes at any time except in the limited
circumstances described below. See “—Exchanges Between Regulation S Global
Notes and Rule 144A Global Notes” below.
The Global Notes, and interests or participations therein, will be subject to certain
restrictions on transfer and will bear a restrictive legend as described under “—Transfer
Restrictions” below. In addition, transfer of beneficial interests in the Global Notes will
be subject to the applicable rules and procedures of DTC and its direct and indirect
participants (including, if applicable, those of Clearstream, Luxembourg and
Euroclear), which may change from time to time.
While the notes are represented by Global Notes, all references to actions by the
noteholders will refer to actions taken by DTC upon instructions from its participating
organizations and all references in this offering memorandum to distributions, notices,
reports and statements to noteholders will refer to distributions, notices, reports and
statements to DTC or its nominee, as the registered noteholder, for distribution to
owners of the notes in accordance with DTC’s procedures.
Investors in the Rule 144A Global Notes may hold their interests therein directly
through DTC, if they are DTC participants, or indirectly through organizations which are
participants in such system, including Clearstream, Luxembourg and Euroclear.
Clearstream, Luxembourg and Euroclear will hold omnibus positions on behalf of their
respective participants, through customer’s securities accounts in Clearstream,
Luxembourg and Euroclear’s names on the books of their respective depositaries. The
depositaries in turn will hold the positions in customer’s securities accounts in the
depositaries’ names on the books of DTC.
According to information provided by DTC, DTC is:
•
a limited-purpose trust company organized under the New York Banking
Law;
75
•
a “banking organization” within the meaning of the New York Banking
Law;
•
a member of the Federal Reserve System;
•
a “clearing corporation” within the meaning of the New York Uniform
Commercial Code; and
•
a “clearing agency” registered under the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended.
DTC holds securities for its participants and facilitates the clearance and
settlement among its participants of securities transactions, including transfers and
pledges, in deposited securities through electronic book-entry changes in its
participants’ accounts. This eliminates the need for physical movement of securities.
DTC participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other organizations. Indirect access to the DTC system is
also available to others including securities brokers and dealers, banks, and trust
companies that clear through or maintain a custodial relationship with a participant,
either directly or indirectly. The rules applicable to DTC and its participants are on file
with the SEC.
Transfers between participants on the DTC system will occur in accordance with
DTC rules. Transfers between participants on the Clearstream, Luxembourg system
and participants on Euroclear will occur in accordance with their respective rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through Clearstream, Luxembourg
participants or Euroclear participants, on the other, will be effected by DTC in
accordance with DTC rules on behalf of the relevant European Clearing System by
that system’s depositary. However, these cross-market transactions will require
delivery of instructions to the relevant European Clearing System by the counterparty in
that system in accordance with its rules and procedures and within its established
deadlines, European time. The relevant European Clearing System will, if the
transaction meets its settlement requirements, deliver instructions to its depositary to
take action to effect final settlement on its behalf by delivering or receiving securities
through DTC, and making or receiving payment in accordance with normal procedures
for same-day funds settlement applicable to DTC. Clearstream, Luxembourg
participants and Euroclear participants may not deliver instructions directly to their
system’s depositary.
Because of time-zone differences, credits of securities in Clearstream,
Luxembourg or Euroclear as a result of a transaction with a DTC participant will be
made during the subsequent securities settlement processing and dated the business
day following the DTC settlement date. The credits for any transactions in these
securities settled during this processing will be reported to the relevant Clearstream,
76
Luxembourg participant or Euroclear participant on that business day. Cash received in
Clearstream, Luxembourg or Euroclear as a result of sales of securities by or through a
Clearstream, Luxembourg participant or a Euroclear participant to a DTC participant will
be received and available on the DTC settlement date. However, such cash will not be
available in the relevant Clearstream, Luxembourg or Euroclear cash account until the
business day following the DTC settlement date.
Purchases of Global Notes held through the DTC system must be made by or
through DTC participants, which will receive a credit for the Global Notes on DTC’s
records. The ownership interest of each actual noteholder is in turn to be recorded on
the DTC participants’ and indirect participants’ records. Noteholders will not receive
written confirmation from DTC of their purchase. However, noteholders are expected to
receive written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the DTC participant or indirect participant through
which the noteholder entered into the transaction. Transfers of ownership interests in
the Global Notes are to be accomplished by entries made on the books of DTC
participants acting on behalf of the noteholders. Noteholders will not receive notes
representing their ownership interest in offered Global Notes unless use of the bookentry system for the Global Notes is discontinued.
To facilitate subsequent transfers, all securities deposited by DTC participants
with DTC are registered in the name of DTC’s nominee, Cede & Co. The deposit of
securities with DTC and their registration in the name of Cede & Co. effects no change
in beneficial ownership. DTC has no knowledge of the actual holders of the Global
Notes; DTC’s records reflect only the identity of the DTC participants to whose accounts
the Global Notes are credited, which may or may not be the actual beneficial owners of
the Global Notes. The DTC participant will remain responsible for keeping account of
their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC participants,
by DTC participants to indirect participants, and by DTC participants and indirect
participants to global noteholders will be governed by arrangements among them and
by any statutory or regulatory requirements as may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote on behalf of the Global Notes.
Under its usual procedures, DTC mails an omnibus proxy to the indenture trustee as
soon as possible after the record date, which assigns Cede & Co.’s consenting or voting
rights to those DTC participants to whose accounts the Global Notes are credited on the
record date, identified in a listing attached to the proxy.
Principal and interest payments on the notes will be made to DTC. DTC’s
practice is to credit its participants’ accounts on the applicable distribution date in
accordance with their respective holdings shown on DTC’s records unless DTC has
reason to believe that it will not receive payment on that distribution date. Standing
instructions, customary practices, and any statutory or regulatory requirements as may
be in effect from time to time will govern payments by DTC participants to noteholders.
These payments will be the responsibility of the DTC participant and not of DTC, the
77
indenture trustee, the eligible lender trustee, or the paying agent. Payment of principal
and interest to DTC is the responsibility of the indenture trustee, disbursement of the
payments to DTC participants is the responsibility of DTC, and disbursement of the
payments to noteholders is the responsibility of DTC participants and indirect
participants.
DTC may discontinue providing its services as a securities depository for the
Global Notes at any time by giving reasonable notice to the indenture trustee and
paying agent. Under these circumstances, if a successor securities depository is not
obtained, Definitive Notes are required to be printed and delivered.
According to DTC, the foregoing information about DTC has been provided for
informational purposes only and is not intended to serve as a representation, warranty,
or contract modification of any kind.
Clearstream, Luxembourg is a company with limited liability incorporated under
the laws of Luxembourg. Clearstream, Luxembourg holds securities for its participating
organizations and facilitates the clearance and settlement of securities transactions
between Clearstream, Luxembourg participants through electronic book-entry changes
in accounts of Clearstream, Luxembourg participants, thereby eliminating the need for
physical movement of notes. Transactions may be settled by Clearstream, Luxembourg
in multiple currencies, including U.S. dollars.
Clearstream, Luxembourg participants are financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies, and
clearing corporations. Indirect access to Clearstream, Luxembourg is also available to
others, including banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Clearstream, Luxembourg participant, either
directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants and to clear
and settle transactions between Euroclear participants through simultaneous electronic
book-entry delivery against payment. This eliminates the need for physical movement
of notes. Transactions may be settled in multiple currencies, including U.S. dollars.
Euroclear is owned by Euroclear Clearance System Public Limited Company and
operated through a license agreement by Euroclear. Euroclear is regulated and
examined by the Belgian Banking and Finance Commission and the National Bank of
Belgium.
Euroclear participants include banks, including central banks, securities brokers
and dealers and other professional financial intermediaries. Indirect access to
Euroclear is also available to other firms that maintain a custodial relationship with a
Euroclear participant, either directly or indirectly.
Securities clearance accounts and cash accounts with Euroclear are governed
by the terms and conditions governing use of Euroclear and the related operating
procedures of Euroclear. These terms and conditions govern transfers of securities and
78
cash within Euroclear, withdrawal of securities and cash from Euroclear, and receipts of
payments for securities in Euroclear. All securities in Euroclear are held on a fungible
basis without attribution of specific notes to specific securities clearance accounts.
Euroclear acts under these terms and conditions only on behalf of Euroclear
participants and has no record of or relationship with persons holding through Euroclear
participants.
Clearstream, Luxembourg and Euroclear have established an electronic bridge
between their two systems across which their respective participants may settle trades
with each other.
Distributions on the Global Notes held through Clearstream, Luxembourg or
Euroclear will be credited to the cash accounts of Clearstream, Luxembourg participants
or Euroclear participants in accordance with the relevant system’s rules and
procedures, to the extent received by its depositary. These distributions must be
reported for tax purposes in accordance with U.S. tax laws and regulations.
Clearstream, Luxembourg or Euroclear, as the case may be, will take any other action
permitted to be taken by a noteholder on behalf of a Clearstream, Luxembourg
participant or Euroclear participant only in accordance with its rules and procedures,
and depending on its depositary’s ability to effect these actions on its behalf through
DTC.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of interests in Global Notes among
participants of DTC, Clearstream, Luxembourg and Euroclear, they are under no
obligation to perform or continue to perform these procedures and these procedures
may be discontinued at any time.
Exchanges Between Regulation S Global Notes and Rule 144A Global Notes
Beneficial interests in a Regulation S Global Note may be transferred to a person
who takes delivery in the form of an interest in a Rule 144A Global Note only if such
exchange occurs in connection with a transfer of the notes pursuant to Rule 144A and,
prior to the expiration of the Distribution Compliance Period, the transferring owner of
the beneficial interest in the applicable Global Note first delivers to the indenture trustee
a written certificate in the form specified in the indenture to the effect that the transfer is
being made to a person that the transferor reasonably believes is a QIB, purchasing for
its own account or the account of a QIB in a transaction meeting the requirements of
Rule 144A and in accordance with all applicable securities laws of the states of the U.S.
and other jurisdictions.
Beneficial interests in a Rule 144A Global Note may be transferred to a person
who takes delivery in the form of an interest in a Regulation S Global Note, whether
before or after the Distribution Compliance Period, only if the transferring owner of the
beneficial interest in the applicable Global Note first delivers to the indenture trustee a
written certificate in the form specified in the indenture to the effect that such transfer is
79
being made in compliance with the transfer restrictions applicable to the notes and
pursuant to and in accordance with Rule 903 or Rule 904 of Regulation S.
Transfers involving an exchange of a beneficial interest in a Regulation S Global
Note for a beneficial interest in a Rule 144A Global Note or vice versa will be effected in
DTC by means of an instruction originated by the indenture trustee through the DTC
Deposit/Withdrawal Custodian system. Any beneficial interest in a Rule 144A Global
Note that is transferred to a person who takes delivery in the form of an interest in a
Regulation S Global Note or vice versa will, upon transfer, cease to be an interest in the
former Global Note and will become an interest in the latter Global Note and,
accordingly, will be subject to all transfer restrictions and other procedures applicable to
a beneficial interest in such other Global Note for so long as it remains such an interest.
Definitive Notes
Notes will be issued as Definitive Notes, rather than in book-entry form to DTC or
its nominee, only if one of the following events occurs:
•
the indenture trustee advises the administrator in writing, that DTC is no
longer willing or able to discharge properly its responsibilities as
depository for the notes, and the administrator is not able to locate a
qualified successor; or
•
after the occurrence of an event of default, the indenture trustee, at the
written direction of noteholders holding a majority of the outstanding
principal amount of the notes, advises the paying agent and the
administrator, that the continuation of a book-entry system is no longer in
the best interests of the beneficial owners of the Global Notes.
If either of these events occurs, DTC is required to notify all of its participants of
the availability of Definitive Notes. Global Notes will be serially numbered if issued in
definitive form.
No noteholder will be entitled to receive a Definitive Note representing its
interest, except as described in the preceding paragraphs.
Definitive Notes will be transferable and exchangeable at the transfer office of the
note registrar, which is initially located at DB Services Tennessee, Inc., Nashville
Transfer Trust and Securities Services, 648 Grassmere Park Road, 1st Floor, Nashville,
Tennessee 37211. The note registrar must at all times have specified offices in New
York, which address currently is 60 Wall Street, 26th Floor, New York, New York 10005.
The note registrar will not impose a service charge for any registration of transfer or
exchange, but may require payment of an amount sufficient to cover any tax or other
governmental charge. The note registrar will not be required to register the transfer or
exchange of Definitive Notes within the 30 days preceding a distribution date for the
Definitive Notes.
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The Notes
Distributions of Interest. Interest will accrue on the outstanding principal balance
of the notes at the interest rate described below. Interest will accrue during each
accrual period and will be payable to the noteholders on each distribution date. Interest
accrued as of any distribution date but not paid on that distribution date will be due on
the next distribution date together with an amount equal to interest on the unpaid
amount at the applicable rate per annum specified in the definition of Note Interest
Shortfall in the Glossary. Interest payments on the notes for any applicable distribution
date will generally be funded from Available Funds and the other sources of funds for
payment described in this offering memorandum (subject to all prior required
distributions). See “—Distributions” and “—Credit Enhancement” in this offering
memorandum. If these sources are insufficient to pay the Interest Distribution Amount
for that distribution date, the shortfall will be allocated pro rata among the noteholders.
Interest will be payable on the notes on each distribution date. The notes will
bear an annual interest rate equal to the sum of three-month LIBOR (except for the first
accrual period) and 0.80%.
LIBOR for the first accrual period will be determined by the following formula:
x + [13/28 * (y-x)]
where:
x = three-month LIBOR, and
y = four-month LIBOR.
The indenture trustee will determine LIBOR for the specified maturity for each
accrual period on the second business day before the beginning of that accrual period,
as described under “—Determination of Indices—LIBOR” below in this offering
memorandum. The first accrual period for the notes will consist of 108 days.
Distributions of Principal. Principal payments will be made to the noteholders on
each distribution date in an amount generally equal to the Principal Distribution Amount
for that distribution date, until the principal balance of the notes is reduced to zero.
Principal payments on the notes will generally be derived from Available Funds and the
other sources of funds available for payment on the notes described in this offering
memorandum (subject to all prior required distributions). See “—Distributions” and
“—Credit Enhancement” in this offering memorandum.
Amounts on deposit in the reserve account, other than amounts in excess of the
Specified Reserve Account Balance, will only be available to make principal
payments on the notes at maturity of the notes or on the final distribution upon
termination of the trust.
The outstanding principal balance of the notes will be due and payable in full on
their maturity date. The actual date on which the outstanding principal and accrued
interest of the notes is paid may be earlier than their maturity date, based on a variety of
factors as described in “Risk Factors—You Will Bear Prepayment and Extension Risk
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Due to Actions Taken by Individual Borrowers and Other Variables Beyond Our Control”
in this offering memorandum.
In addition, on each distribution date, the amount of Available Funds remaining
after the payments described in items (1) through (7) under “—Distributions—Quarterly
Distributions from the Collection Account” below will be distributed to the noteholders as
accelerated payments of principal.
Pool Factors
The pool factor for the notes will be a seven-digit decimal computed by the
administrator before each distribution date. The pool factor will indicate the remaining
outstanding balance of the notes, after giving effect to distributions to be made on that
distribution date, as a fraction of the initial outstanding balance of the notes. The pool
factor will initially be 1.0000000. Thereafter, it will decline to reflect reductions in the
outstanding balance of the notes. Your portion of the aggregate outstanding balance of
the notes will be the product of:
•
the original denomination of your note; and
•
the applicable pool factor.
Noteholders will receive reports on or about each distribution date concerning various
matters, including the payments the trust has received on the related trust student
loans, the Pool Balance, the pool factor and various other items of information. See
“Reports to Noteholders” in this offering memorandum.
Notice of Interest Rate
Information concerning the past and current LIBOR rate and the interest rate
applicable to the notes will be available on the indenture trustee’s website at
https://tss.sfs.db.com/investpublic or by telephoning the indenture trustee at
(212) 250-4855 between the hours of 9 a.m. and 4 p.m. Eastern time on any business
day and will also be available through the Reuters LIBOR01 Page or Bloomberg L.P. If
the notes are admitted to the official list of the Irish Stock Exchange and trading on its
regulated market, the administrator will cause the Irish Stock Exchange to be notified, of
the current interest rate for the notes listed on the exchange prior to the first day of each
accrual period.
Determination of Indices
Day-Count Basis; Interest Rate Change Dates; Interest Rate Determination
Dates. Interest due for any accrual period generally will be determined on the basis of
an “Actual/360” which means that interest or any other relevant factor is calculated on
the basis of the actual number of days elapsed in a year of 360 days. The interest rate
determination date for the notes will be the LIBOR Determination Date, as described
under “—LIBOR” below.
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LIBOR. “LIBOR,” for any accrual period, will be the rate for deposits in U.S.
dollars having the specified maturity commencing on the first day of the accrual period,
which appears on the Reuters LIBOR01 Page or on such comparable service as is
customarily used to quote LIBOR as of 11:00 a.m., London time, on the related LIBOR
Determination Date. If this rate does not appear on the Reuters LIBOR01 Page or on
such comparable service as is customarily used to quote LIBOR, the rate for that LIBOR
Determination Date will be determined on the basis of the rates at which deposits in
U.S. dollars, having the specified maturity, are offered by the Reference Banks at
approximately 11:00 a.m., London time, on that LIBOR Determination Date to prime
banks in the London interbank market. The indenture trustee will request the principal
London office of each Reference Bank to provide a quotation of its rate. If at least two
quotations are provided, the rate for that LIBOR Determination Date will be the
arithmetic mean of the quotations. If fewer than two quotations are provided, the rate
for that LIBOR Determination Date will be the arithmetic mean of the rates quoted by
major banks in New York City, selected by the indenture trustee, at approximately
11:00 a.m., New York City time, on that LIBOR Determination Date for loans in U.S.
dollars to leading European banks having the specified maturity. If the banks selected
as described above are not providing quotations, LIBOR in effect for the applicable
accrual period will be LIBOR for the specified maturity in effect for the previous accrual
period. For purposes of calculating LIBOR, a business day is any day on which banks
in New York City and the City of London are open for the transaction of international
business. Interest due for any accrual period will be determined on an Actual/360 basis.
For this purpose:
•
“LIBOR Determination Date” means, for each accrual period, the second
business day before the beginning of that accrual period.
•
“Reference Banks” means four major banks in the London interbank
market selected by the indenture trustee.
•
“Reuters LIBOR01 Page” means the display page so designated on the
Reuters Monitor Money Rates Service, or such other page that may
replace that page on that service, or such other service as may be
nominated as the information vendor for the purposes of displaying
comparable rates or prices.
Successor Service. When an interest rate or interest rate index is determined by
reference to any display page provided by an information vendor, such as Reuters or
Bloomberg, such page shall mean the display page so designated on the information
vendor’s service or any successor service. A successor service shall mean the
successor display page, other published source, information vendor or provider that has
been selected by the indenture trustee and published on the indenture trustee’s website
or if the indenture trustee has not selected and published a successor service, the
successor display page, other published source, information vendor or provider that has
been officially designated by the sponsor of the original page or service.
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Trust Accounts and Eligible Investments
The indenture trustee will establish and maintain in the name of the indenture
trustee the collection account, the capitalized interest account, the rebate account and
the reserve account for the benefit of the noteholders.
Funds in the Trust Accounts will be invested in “eligible investments” which are
book-entry securities, negotiable instruments or securities represented by instruments in
bearer or registered form which evidence:
•
direct obligations of, and obligations fully guaranteed as to timely payment
by, the United States of America, GNMA, Freddie Mac, Fannie Mae or
any agency or instrumentality of the United States of America the
obligations of which are backed by the full faith and credit of the United
States of America; provided that obligations of, or guaranteed by, GNMA,
Freddie Mac or Fannie Mae shall be eligible investments only if, at the
time of investment, they meet the criteria of each of the Rating Agencies
for collateral for securities having ratings equivalent to the ratings of the
notes in effect at the closing date;
•
demand deposits, time deposits or certificates of deposit of any depository
institution or trust company incorporated under the laws of the United
States of America or any State (or any domestic branch of a foreign bank)
and subject to supervision and examination by federal or state banking or
depository institution authorities (including depository receipts issued by
any such institution or trust company as custodian with respect to any
obligation referred to in the first bullet point above or portion of such
obligation for the benefit of the holders of such depository receipts);
provided that at the time of the investment or contractual commitment to
invest therein (which shall be deemed to be made again each time funds
are reinvested following each distribution date), the commercial paper or
other short-term senior unsecured debt obligations (other than such
obligations the rating of which is based on the credit of a person other
than such depository institution or trust company) thereof shall have a
credit rating from each of the Rating Agencies in the highest investment
category granted thereby;
•
commercial paper having, at the time of the investment, a rating from each
of the Rating Agencies in the highest investment category granted
thereby;
•
investments in money market funds having a rating from each of the
Rating Agencies in the highest investment category granted thereby
(including funds for which the indenture trustee or the eligible lender
trustee, or any of their respective affiliates is investment manager or
advisor); and
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•
bankers’ acceptances issued by any depository institution or trust
company referred to in the second bullet point above.
Notwithstanding the foregoing, the indenture trustee shall not be obligated to
make a selection with respect to such Eligible Investments in the absence of direction
from the administrator on behalf of the trust.
The calculation agent on behalf of the administrator will prepare a monthly
account statement; however, there will be no independent verification of the accounts or
the transaction activity therein by either the indenture trustee or the eligible lender
trustee.
Distributions
Deposits into the Collection Account. On the closing date, the trust will make an
initial deposit into the collection account of cash or eligible investments equal to
approximately $6,280,000, plus the excess, if any, of the Pool Balance as of the
statistical cutoff date over the Pool Balance as of the closing date. On or before the
business day immediately prior to each distribution date, the master servicer and the
administrator will provide the indenture trustee with certain information as to the
preceding collection period, including the amount of Available Funds received from the
trust student loans and the aggregate purchase amount of the trust student loans to be
purchased from the trust by BANA, the depositor or the master servicer, if applicable.
The master servicer will cause all payments on the trust student loans and all
proceeds of trust student loans collected during each collection period to be deposited
into the collection account within two business days of receipt. The eligible lender
trustee will deposit all interest subsidy payments and all special allowance payments on
the trust student loans that it receives for each collection period into the collection
account within two business days of receipt. See “Servicing and Administration—
Payments on Trust Student Loans” in this offering memorandum.
Monthly Distributions from the Collection Account. On each monthly servicer
payment date that is not a distribution date, the administrator will instruct the indenture
trustee to pay the master servicer the primary servicing fee due for the period from and
including the preceding monthly servicer payment date from amounts on deposit in the
collection account.
Quarterly Distributions from the Collection Account. On or before each
distribution date, the administrator will cause the calculation agent to instruct the
indenture trustee, in writing, to make the deposits and distributions set forth below, in
the amounts and in the order of priority shown below, except as otherwise provided
below under “—Priority of Payments Following Certain Events of Default Under the
Indenture.”
These deposits and distributions will be made to the extent of Available Funds for
that distribution date, plus funds (A) deposited into the collection account from the
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capitalized interest account, if any, for payment of items (1) through (3) and
(B) deposited into the collection account from the reserve account, if any, for payment of
items (1) through (3) and at final maturity, item (4) to the extent necessary to reduce the
outstanding principal balance of the notes to zero, and, in the case of the final
distribution upon termination of the trust, for payment of items (1) through (9):
(1)
to the master servicer, the primary servicing fee due on that
distribution date;
(2)
to the administrator and the calculation agent, the administration
fees due on that distribution date and all prior unpaid administration
fees;
(3)
to the noteholders, the Interest Distribution Amount;
(4)
to the noteholders, the Principal Distribution Amount, until the
outstanding principal balance of the notes has been reduced to
zero;
(5)
to the reserve account, the amount required to reinstate the amount
in the reserve account up to the Specified Reserve Account
Balance;
(6)
to the indenture trustee, the eligible lender trustee and the
Delaware trustee, any unpaid fees and expenses, including without
limitation any indemnity amounts, to the extent such amounts have
not been paid by the administrator;
(7)
to the master servicer, the aggregate unpaid amount of the
carryover servicing fee, if any;
(8)
to the noteholders, any remaining amounts after application of the
preceding clauses, until the outstanding principal balance of the
notes has been reduced to zero; and
(9)
to the residual certificateholder, any remaining amounts after
application of the preceding clauses.
Notwithstanding the foregoing, the indenture trustee shall pay and reimburse
itself, the eligible lender trustee and the Delaware trustee for any fees and expenses
(including without limitation any indemnity amounts) owed to such parties under the
indenture or the trust agreement, as applicable, prior to making any payments under
clauses (1) through (8) above, to the extent such parties’ full amount of fees and
expenses (including without limitation any indemnity amounts) are not reimbursed by
the administrator. Distributions to the indenture trustee, the eligible lender trustee and
the Delaware trustee paid from the trust prior to other distributions of Available Funds
shall be paid pro rata among the indenture trustee, the eligible lender trustee and the
Delaware trustee and shall not exceed $150,000 per annum in the absence of an event
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of default under the indenture. However, in the event that there is an event of default
under the indenture (with no acceleration of the maturity of the notes by declaration of
noteholders holding a majority of the outstanding principal balance of the notes) as a
result of an uncured default in the observance or performance by the trust of any
covenant or agreement, then such payments shall not exceed $150,000 per annum until
either an acceleration of the maturity of the notes (by declaration of noteholders holding
a majority of the outstanding principal balance of the notes) has occurred in connection
with such event of default or another event of default under the indenture has occurred,
in which case the $150,000 per annum cap will not be applicable.
Priority of Payments Following Certain Events of Default Under the Indenture
After any of the following:
•
an event of default under the indenture relating to the payment of principal
on the notes at their maturity date which has resulted in an acceleration of
the maturity of the notes;
•
an event of default under the indenture relating to an insolvency event or a
bankruptcy with respect to the trust which has resulted in an acceleration
of the maturity of the notes; or
•
a liquidation of the trust assets following any event of default under the
indenture,
the priority of payments changes. In particular, payments on the notes on each
distribution date following the acceleration of the maturity of the notes as provided
above will be made in the following order of priority:
(1)
pro rata, to the indenture trustee, for annual fees and any other
amounts due and owing to it under the indenture, and to the eligible
lender trustee and Delaware trustee, if applicable, for annual fees
and any other amounts due and owing to them under the trust
agreement (but, in each case, only to the extent not paid by the
administrator or the depositor);
(2)
to the master servicer, the primary servicing fee due on that
distribution date;
(3)
to the administrator and the calculation agent, the administration
fees due on that distribution date and all prior unpaid administration
fees;
(4)
to the noteholders, the Interest Distribution Amount;
(5)
to the noteholders, an amount sufficient to reduce the principal
balance of the notes to zero;
87
(6)
to the master servicer, all carryover servicing fees, if any; and
(7)
to the residual certificateholder, any remaining funds.
Voting Rights and Remedies
Noteholders will have the voting rights and remedies set forth in this offering
memorandum under “Description of the Notes—The Indenture—Events of Default;
Rights Upon Event of Default.”
Capitalized Interest Account
The capitalized interest account will be created with an initial deposit by the trust
on the closing date of cash or eligible investments in an amount equal to $42,000,000.
Amounts on deposit into the capitalized interest account will not be replenished.
Amounts held from time to time in the capitalized interest account will be held for
the benefit of the noteholders. Funds will be withdrawn from the capitalized interest
account on any distribution date through the April 2012 distribution date to the extent
that the amount of Available Funds on the distribution date is insufficient to pay items
(1) through (3) under “—Distributions—Quarterly Distributions from the Collection
Account” above. Any amount remaining on deposit in the capitalized interest account
on the April 2012 distribution date will be released to the collection account and treated
as Available Funds.
The capitalized interest account is intended to enhance the likelihood of timely
distributions of interest to the noteholders through the April 2012 distribution date.
Amounts on deposit in the capitalized interest account may also be utilized to cover
shortages, if any, with respect to amounts required to be remitted to the Department of
Education from the rebate account.
Credit Enhancement
Reserve Account. The reserve account will be created with an initial deposit by
the trust on the closing date of cash or eligible investments in an amount equal to
$3,222,794.42. The reserve account may be replenished on each distribution date by a
deposit into it of the amount, if any, necessary to reinstate the balance of the reserve
account to the Specified Reserve Account Balance from the amount of Available Funds
remaining after payment for that distribution date of the items specified in clauses (1)
through (4) under “—Distributions—Quarterly Distributions from the Collection Account”
above.
If the market value of cash and eligible investments in the reserve account on
any distribution date is sufficient, when taken together with amounts on deposit in the
collection account, to pay the remaining principal balance of and accrued interest on the
notes and any servicing and administration fees, amounts on deposit in the reserve
account will be so applied on that distribution date.
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If the amount on deposit in the reserve account on any distribution date after
giving effect to all deposits or withdrawals from the reserve account on that distribution
date is greater than the Specified Reserve Account Balance for that distribution date,
subject to certain limitations, the administrator will instruct the indenture trustee in
writing to deposit the amount of the excess into the collection account to be included as
part of Available Funds on that distribution date.
Amounts held from time to time in the reserve account will continue to be held for
the benefit of the trust. Funds will be withdrawn from amounts on deposit in the reserve
account on any distribution date or, in the case of the payment of any primary servicing
fee, on any monthly servicer payment date, to the extent that the amount of Available
Funds and the amount on deposit in the capitalized interest account on that distribution
date or monthly servicer payment date is insufficient to pay any of the items specified in
clauses (1) through (3) under “—Distributions—Quarterly Distributions from the
Collection Account” above. These funds also will be withdrawn at final maturity of the
notes or on the final distribution upon termination of the trust to the extent that the
amount of Available Funds at that time is insufficient to pay the items specified in clause
(4) and, in the case of the final distribution upon termination of the trust, clauses (1)
through (9) under “—Distributions—Quarterly Distributions from the Collection Account”
above.
The reserve account is intended to enhance the likelihood of timely distributions
of interest to the noteholders and the payment in full of the notes at their maturity date.
In some circumstances, however, amounts on deposit in the reserve account could be
reduced to zero.
Overcollateralization. On the closing date, the sum of the initial Pool Balance of
the trust and the initial deposits into the capitalized interest account and the reserve
account will be approximately 108.34% of the aggregate principal balance of the notes.
Overcollateralization is intended to provide credit enhancement for the notes. In
general, the amount of overcollateralization is intended to equal the product of (a) the
Overcollateralization Percentage minus 100% and (b) the then current aggregate
principal balance of the notes. The amount of overcollateralization will vary from time to
time depending on the rate and timing of principal payments on the trust student loans,
capitalization of interest, certain borrower fees and the incurrence of losses on the trust
student loans.
Administration Fees
As compensation for the performance of the administrator’s and the calculation
agent’s obligations under the administration agreement and as reimbursement for its
related expenses, the administrator and the calculation agent will be entitled to an
administration fee in an amount equal to $20,000 and $57,500, respectively, per
collection period payable proportionately in arrears on each distribution date.
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Servicing Compensation
The master servicer will be entitled to receive the master servicing fee in an
amount equal to the primary servicing fee and the carryover servicing fee as
compensation for performing the functions as master servicer for the trust. The primary
servicing fee for any month will equal 1/12 of 0.90% of the Pool Balance, calculated as
of the closing date or the first day of the preceding calendar month, as the case may be.
The primary servicing fee will be payable in arrears out of Available Funds and amounts
on deposit in the collection account, the capitalized interest account and the reserve
account on each monthly servicer payment date or distribution date, as applicable,
beginning in August 2010. Primary servicing fees due and payable to the master
servicer will include amounts from any prior monthly servicer payment dates or
distribution dates, as applicable, that remain unpaid.
The carryover servicing fee is the sum of:
•
the amount of specified increases in the costs incurred by the master
servicer;
•
the amount of specified conversion, transfer and removal fees;
•
any amounts described in the first two bullets that remain unpaid from
prior distribution dates;
•
the amount of specified increases in the fees payable by the master
servicer pursuant to the subservicing agreement that exceed its primary
servicing fee; and
•
interest on any unpaid amounts.
The carryover servicing fee, including interest on any unpaid amounts computed
at the 91-day treasury bill rate, will be payable to the master servicer on each
distribution date out of Available Funds after payment on that distribution date of the
items specified in clauses (1) through (6) under “—Distributions—Quarterly Distributions
from the Collection Account.” The carryover servicing fee will be subject to increases
agreed to by the administrator, the eligible lender trustee and the master servicer, to the
extent that a demonstrable and significant increase occurs in the costs incurred by the
master servicer in providing services under the master servicing agreement, such as
those due to changes in applicable governmental regulations or postal rates.
All amounts due and owed to the subservicer under the subservicing agreement
will be paid by the master servicer and will not be obligations of the trust.
Trust Fees
The table below sets forth the fees payable by or on behalf of the trust.
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Party
Amount
Master Servicer(1) ............
To be paid as described in “—Servicing Compensation” above. The master
servicer will pay the fees of the subservicer as set forth in the subservicing
agreement.(2) The subservicer’s fees will not be obligations of the trust.
Indenture Trustee(3) .........
To be paid as set forth in the fee agreement dated February 2, 2010.
(4)
Delaware Trustee .........
(5)
Administrator ................
(5)
Calculation Agent .........
$4,000 per annum, payable in advance.
$20,000 per quarter, payable in arrears.
$57,500 per quarter, payable in arrears.
(1) To be paid as described in “—Servicing Compensation” above.
(2) The master servicer, pursuant to the subservicing agreement, will pay the subservicer a monthly subservicing
fee, ranging up to $3.66 per trust student loan, based on such factors as the borrower payment status (i.e., in
school, grace, repayment), type of loan (i.e., Stafford, PLUS) and date of origination.
(3) To be paid by the administrator pursuant to a separate agreement with the indenture trustee, and may be paid by
the trust if there is an event of default under the indenture, and such amount has not previously been paid.
(4) To be paid by the administrator pursuant to a separate agreement with the Delaware trustee, and may be paid by
the trust if there is an event of default under the indenture, and such amount has not previously been paid.
(5) To be paid before any amounts are distributed to the noteholders.
Transfer Restrictions
The following information relates to the form, transfer and delivery of the notes.
Because of the following restrictions, purchasers of the notes are advised to consult
legal counsel prior to making any offer, resale, pledge or transfer of the notes.
The notes are being offered and sold by the initial purchasers only to QIBs in
transactions meeting the requirements of Rule 144A or to non-U.S. Persons outside the
United States pursuant to the requirements of Regulation S.
Any ownership interest represented by a beneficial interest in a Rule 144A Global
Note may be transferred to another entity who wishes to hold notes in the form of an
interest in a Rule 144A Global Note; provided, that, the applicable transferor and
transferee are deemed to have represented and warranted that such transfer is being
made to a transferee that (i) the transferor reasonably believes is a QIB in a transaction
meeting the requirements of Rule 144A; (ii) is acquiring such notes in reliance on an
exemption from registration under the Securities Act other than Rule 144A; or (iii) is
acquiring such notes pursuant to an effective registration statement under the Securities
Act.
After the related Distribution Compliance Period, any ownership interest
represented by a beneficial interest in the Regulation S Global Note may be transferred
to a person who wishes to hold notes in the form of an interest in the Regulation S
Global Note; provided, that, the applicable transferee is deemed to have represented
and warranted that it is not a U.S. Person and such transfer is being made in
accordance with Rule 903 or Rule 904 of Regulation S and all other applicable
securities laws.
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After the related Distribution Compliance Period, such deemed representations
and warranties will no longer apply to transfers of notes where the related beneficial
interest is held through the Regulation S Global Note, but all such transfers will continue
to be subject to the transfer restrictions contained in the legend appearing on the face of
such Global Note, as described below.
Transfers of interests from a Regulation S Global Note for an interest in a Rule
144A Global Note, and vice versa, may be made at any time, but only if the intended
transferor and transferee can be deemed to represent and warrant that such transferee
fulfills the conditions set forth above to hold a beneficial interest in the applicable Global
Note. Any interest in the notes represented by an interest in a Rule 144A Global Note
that is transferred to a person who takes delivery in the form of an interest in a
Regulation S Global Note, and vice versa, will, upon transfer, cease to be an interest in
such original Rule 144A Global Note or Regulation S Global Note, as the case may be,
and become an interest in a Regulation S Global Note or a Rule 144A Global Note, as
applicable, and, accordingly, will thereafter be subject to all transfer restrictions and
other procedures applicable to an interest in the applicable form of Global Note.
Each purchaser of notes that represent a beneficial interest in a Global Note will
be deemed to have represented and agreed, and each purchaser of a Definitive Note
will be required to certify in writing, among other things to be set forth in the indenture,
that:
(a)
(1) the purchaser is a QIB and is acquiring such notes for its own account
or as a fiduciary or agent for others (which others also must be QIBs) for investment
purposes and not for distribution in violation of the Securities Act, and it is able to bear
the economic risk of an investment in the notes and has such knowledge and
experience in financial and business matters as to be capable of evaluating the merits
and risks of purchasing the notes, or (2) the purchaser is a non-U.S. Person outside the
United States, acquiring the notes pursuant to an exemption from registration in
accordance with Rule 903 or Rule 904 of Regulation S;
(b)
the purchaser understands that the notes are being offered only in a
transaction that does not require registration under the Securities Act and, if such
purchaser decides to resell or otherwise transfer such notes, then it agrees that it will
resell or transfer such notes only (1) so long as such notes are eligible for resale
pursuant to Rule 144A, to a person whom the seller reasonably believes is a QIB
acquiring the notes for its own account or as a fiduciary or agent for others (which
others must also be QIBs) to whom notice is given that the resale or other transfer is
being made in reliance on Rule 144A, (2) pursuant to an effective registration statement
under the Securities Act, (3) pursuant to an exemption from registration under the
Securities Act other than Rule 144A, or, if applicable, (4) to a purchaser who is a nonU.S. Person outside the United States, acquiring the notes pursuant to an exemption
from registration under the Securities Act in accordance with Rule 903 or Rule 904 of
Regulation S or, in each case in accordance with any applicable United States state
securities or “Blue Sky” laws or any securities laws of any other jurisdiction;
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(c)
unless the relevant legend set out below has been removed from the
relevant notes, the purchaser shall notify each transferee of the notes that (1) such
notes have not been registered under the Securities Act, (2) the holder of such notes is
subject to the restrictions on the resale or other transfer thereof described in paragraph
(b) above, and (3) such transferee shall be deemed to have represented (i) as to its
status as a QIB or as a non-U.S. Person outside the United States acquiring the notes
pursuant to an exemption from registration under the Securities Act in accordance with
Rule 903 or Rule 904 of Regulation S, as the case may be, (ii) if such transferee is a
QIB, that such transferee is acquiring the notes for its own account or as a fiduciary or
agent for others (which others also must be QIBs) (or that is acquiring such notes in
reliance on an exemption under the Securities Act other than Rule 144A or pursuant to
an effective registration statement under the Securities Act), and (iii) that such
transferee shall be deemed to have agreed to notify its subsequent transferees as to the
foregoing;
(d)
if the purchaser is acquiring its interest in any note by, for or with the
assets of, a benefit plan, such acquisition or holding of the note will not constitute or
otherwise result in: (1) in the case of a benefit plan subject to Title I of ERISA and/or
Section 4975 of the Code, a non-exempt prohibited transaction in violation of Section
406 of ERISA or Section 4975 of the Code which is not covered by a class or other
applicable exemption and (2) in the case of a benefit plan subject to a substantially
similar federal, state, local or foreign law, a non-exempt violation of such substantially
similar law. Any transfer found to have been made in violation of such deemed
representation shall be null and void and of no effect; and
(e)
(1) the purchaser understands that each Rule 144A Global Note and any
Rule 144A Definitive Note (collectively, the “Rule 144A Certificates”) will bear the
following legend unless determined otherwise in accordance with applicable law:
“THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), ANY UNITED STATES
STATE SECURITIES OR “BLUE SKY” LAWS OR ANY SECURITIES LAWS OF ANY
OTHER JURISDICTION, AND THE ISSUING ENTITY HAS NOT BEEN REGISTERED
AS AN INVESTMENT COMPANY UNDER THE UNITED STATES INVESTMENT
COMPANY ACT OF 1940, AND, AS A MATTER OF U.S. LAW, THIS NOTE MAY NOT
BE OFFERED OR SOLD IN VIOLATION OF THE ACT OR SUCH OTHER LAWS.
THIS NOTE MAY BE TRANSFERRED ONLY IN MINIMUM DENOMINATIONS OF
$100,000 AND $1,000 INCREMENTS IN EXCESS THEREOF.
THE HOLDER
HEREOF, BY PURCHASING OR ACCEPTING THIS NOTE IS HEREBY DEEMED TO
HAVE AGREED FOR THE BENEFIT OF THE TRUST AND THE INITIAL
PURCHASERS THAT IT WILL RESELL, PLEDGE OR OTHERWISE TRANSFER THIS
NOTE, AS A MATTER OF U.S. LAW, ONLY (A) (1) SO LONG AS THIS NOTE IS
ELIGIBLE FOR RESALE, PURSUANT TO RULE 144A PROMULGATED UNDER THE
ACT (“RULE 144A”), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER, AS DEFINED IN RULE 144A (A
“QUALIFIED INSTITUTIONAL BUYER”), THAT IS ACQUIRING THIS NOTE FOR ITS
OWN ACCOUNT OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS
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MUST ALSO BE QUALIFIED INSTITUTIONAL BUYERS) TO WHOM NOTICE IS
GIVEN THAT THE RESALE OR OTHER TRANSFER IS BEING MADE IN RELIANCE
ON RULE 144A, (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE ACT OTHER THAN RULE 144A, (3) TO A PERSON WHO IS NOT A “U.S.
PERSON” (AS DEFINED IN REGULATION S PROMULGATED UNDER THE ACT
(“REGULATION S”)) OUTSIDE THE UNITED STATES ACQUIRING THIS NOTE IN
ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S PROMULGATED
UNDER THE ACT OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, IN EACH CASE IN ACCORDANCE WITH ANY
UNITED STATES STATE SECURITIES OR “BLUE SKY” LAWS OR ANY SECURITIES
LAWS OF ANY OTHER JURISDICTION. UPON ACQUISITION OR TRANSFER OF A
NOTE OR A BENEFICIAL INTEREST IN A NOTE, AS THE CASE MAY BE, BY, FOR
OR WITH THE ASSETS OF, (1) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN
SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974 (“ERISA”)), WHETHER OR NOT SUBJECT TO THE PROVISIONS OF TITLE I
OF ERISA, (2) A PLAN DESCRIBED IN SECTION 4975 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), WHETHER OR NOT
SUBJECT TO SECTION 4975 OF THE CODE OR (3) ANY ENTITY WHOSE
UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN’S
INVESTMENT IN THE ENTITY (A “BENEFIT PLAN”), SUCH NOTEHOLDER SHALL
BE DEEMED TO HAVE REPRESENTED THAT SUCH ACQUISITION OR HOLDING
OF THIS NOTE WILL NOT CONSTITUTE OR OTHERWISE RESULT IN: (I) IN THE
CASE OF A BENEFIT PLAN SUBJECT TO TITLE I OF ERISA AND/OR SECTION
4975 OF THE CODE, A NON-EXEMPT PROHIBITED TRANSACTION IN VIOLATION
OF SECTION 406 OF ERISA AND/OR SECTION 4975 OF THE CODE WHICH IS NOT
COVERED BY A CLASS OR OTHER APPLICABLE EXEMPTION AND (II) IN THE
CASE OF A BENEFIT PLAN SUBJECT TO A SUBSTANTIALLY SIMILAR FEDERAL,
STATE, LOCAL OR FOREIGN LAW, A NON-EXEMPT VIOLATION OF SUCH
SUBSTANTIALLY SIMILAR LAW. ANY TRANSFER FOUND TO HAVE BEEN MADE
IN VIOLATION OF SUCH DEEMED REPRESENTATION SHALL BE NULL AND VOID
AND OF NO EFFECT.
THIS NOTE AND RELATED DOCUMENTATION MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND
PROCEDURES UNDERTAKEN OR REPRESENTED BY THE HOLDER, FOR
RESALES AND OTHER TRANSFERS OF THIS NOTE, TO REFLECT ANY CHANGE
IN APPLICABLE LAWS OR REGULATIONS (OR THE INTERPRETATION THEREOF)
OR IN PRACTICES RELATING TO RESALES OR OTHER TRANSFERS OF
RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS NOTE AND ANY
BENEFICIAL OWNER OF ANY INTEREST THEREIN SHALL BE DEEMED, BY ITS
ACCEPTANCE OR PURCHASE HEREOF OR THEREOF, TO HAVE AGREED TO
ANY SUCH AMENDMENT OR SUPPLEMENT (EACH OF WHICH SHALL BE
CONCLUSIVE AND BINDING ON THE HOLDER HEREOF AND ALL FUTURE
HOLDERS OF THIS NOTE AND ANY NOTES ISSUED IN EXCHANGE OR
SUBSTITUTION HEREFOR, WHETHER OR NOT ANY NOTATION THEREOF IS
MADE HEREON) AND AGREES TO TRANSFER THIS NOTE ONLY IN
ACCORDANCE WITH ANY SUCH AMENDMENT OR SUPPLEMENT IN
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ACCORDANCE WITH APPLICABLE LAW IN EFFECT AT THE DATE OF SUCH
TRANSFER”; or
(2)
The purchaser understands that each Regulation S Global Note and any
Regulation S Definitive Note (collectively, the “Regulation S Certificates”) will bear
the following legend unless determined otherwise in accordance with applicable law:
“THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “ACT”), ANY UNITED STATES STATE SECURITIES
OR “BLUE SKY” LAWS OR ANY SECURITIES LAWS OF ANY OTHER
JURISDICTION, AND, AS A MATTER OF U.S. LAW, PRIOR TO THE DATE THAT IS
40 DAYS AFTER THE LATER OF THE COMMENCEMENT OF THE OFFERING OF
THE NOTES AND THE CLOSING OF THE OFFERING OF THE NOTES MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE UNITED
STATES OR TO A “U.S. PERSON” (AS DEFINED IN REGULATION S
PROMULGATED UNDER THE ACT) EXCEPT PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE ACT OR PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, IN EACH CASE IN
ACCORDANCE WITH ANY UNITED STATES STATE SECURITIES OR “BLUE SKY”
LAWS OR ANY SECURITIES LAWS OF ANY OTHER JURISDICTION. THIS NOTE
MAY BE TRANSFERRED ONLY IN MINIMUM DENOMINATIONS OF $100,000 AND
$1,000 INCREMENTS IN EXCESS THEREOF.
UPON ACQUISITION OR TRANSFER OF A NOTE OR A BENEFICIAL
INTEREST IN A NOTE, AS THE CASE MAY BE, BY, FOR OR WITH THE ASSETS
OF, (1) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (“ERISA”)), WHETHER
OR NOT SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (2) A PLAN
DESCRIBED IN SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE “CODE”), WHETHER OR NOT SUBJECT TO SECTION 4975 OF
THE CODE OR (3) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN
ASSETS BY REASON OF A PLAN’S INVESTMENT IN THE ENTITY (A “BENEFIT
PLAN”), SUCH NOTEHOLDER SHALL BE DEEMED TO HAVE REPRESENTED THAT
SUCH ACQUISITION OR HOLDING OF THIS NOTE WILL NOT CONSTITUTE OR
OTHERWISE RESULT IN: (I) IN THE CASE OF A BENEFIT PLAN SUBJECT TO
TITLE I OF ERISA AND/OR SECTION 4975 OF THE CODE, A NON-EXEMPT
PROHIBITED TRANSACTION IN VIOLATION OF SECTION 406 OF ERISA AND/OR
SECTION 4975 OF THE CODE WHICH IS NOT COVERED BY A CLASS OR OTHER
APPLICABLE EXEMPTION AND (II) IN THE CASE OF A BENEFIT PLAN SUBJECT
TO A SUBSTANTIALLY SIMILAR FEDERAL, STATE, LOCAL OR FOREIGN LAW, A
NON-EXEMPT VIOLATION OF SUCH SUBSTANTIALLY SIMILAR LAW.
ANY
TRANSFER FOUND TO HAVE BEEN MADE IN VIOLATION OF SUCH DEEMED
REPRESENTATION SHALL BE NULL AND VOID AND OF NO EFFECT.”
Upon the transfer, exchange or replacement of a Rule 144A Certificate or a
Regulation S Certificate bearing the applicable legends set forth above, or upon specific
request for removal of the legends, the trust, the indenture trustee or the note registrar
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will deliver only replacement Rule 144A Certificates or Regulation S Certificates, as the
case may be, that bear such applicable legends, or will refuse to remove such
applicable legends, unless there is delivered to the trust, the indenture trustee and the
note registrar such satisfactory evidence (which may include a legal opinion) as may
reasonably be required by the trust, the note registrar and the indenture trustee that
neither the applicable legends nor the restrictions on transfer set forth therein are
required to ensure compliance with the provisions of the Securities Act.
Transfers of interests in the notes represented by Global Notes within the
European Clearing Systems will be in accordance with the usual rules and operating
procedures of the relevant European Clearing System, which are generally the same as
those set forth in Annex D to this offering memorandum.
The laws of some states of the United States of America require that certain
persons receive individual certificates in respect of their holding of notes.
Consequently, the ability to transfer interests in a Global Note to such persons will be
limited. Because the European Clearing Systems only act on behalf of participants,
who in turn act on behalf of indirect participants, the ability of a person having an
interest in a Global Note to pledge such interest to persons or entities which do not
participate in the relevant European Clearing System, or otherwise take actions in
respect of such interest, may be affected by the lack of a Definitive Note representing
such interest.
Although each of the European Clearing Systems has agreed to the foregoing
procedures in order to facilitate transfers of interests in the Global Notes among
participants and account holders of Clearstream, Luxembourg and Euroclear, they are
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the trust, the registrar, the
indenture trustee, any authentication agent, any transfer agent or any paying agent will
have any responsibility for the performance by any European Clearing System or their
respective direct or indirect participants or account holders of their respective
obligations under the rules and procedures governing their respective operations.
Optional Purchase
The master servicer may purchase or arrange for the purchase of all remaining
trust student loans on any distribution date on or after the first distribution date when the
Pool Balance is 10% or less of the initial Pool Balance.
The exercise of this purchase option will result in the early retirement of the
remaining notes. The purchase price will equal the amount required to prepay in full,
including all accrued and unpaid interest, the remaining trust student loans as of the end
of the preceding collection period, but not less than a prescribed minimum purchase
amount.
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This prescribed minimum purchase amount is the amount that would be sufficient
to:
•
pay to noteholders the interest payable on the related distribution date;
and
•
reduce the outstanding principal amount of the notes then outstanding on
the related distribution date to zero.
See “The Trust Student Loan Pool—Termination of the Trust” in this offering
memorandum.
PREPAYMENTS, EXTENSIONS, WEIGHTED AVERAGE LIVES AND EXPECTED
MATURITIES OF THE NOTES
The rate of principal payments on the notes and the yield on the notes will be
affected by prepayments on the trust student loans that may occur as described below.
Therefore, payments on the notes could occur significantly earlier than expected.
Consequently, the actual maturities of the notes could be significantly earlier, average
lives of the notes could be significantly shorter, and periodic balances could be
significantly lower, than expected. Each trust student loan is prepayable in whole or in
part, without penalty, by the borrowers at any time, or as a result of a borrower’s default,
death, disability or bankruptcy and subsequent liquidation or collection of guarantee
payments with respect thereto. The rate of such prepayments cannot be predicted and
may be influenced by a variety of economic, social, competitive and other factors,
including as described below. In general, the rate of prepayments may tend to increase
to the extent that alternative financing becomes available on more favorable terms or at
interest rates significantly below the interest rates applicable to the trust student loans.
Prepayments could increase as a result of certain borrower benefit programs, among
other factors. In addition, the depositor is obligated to repurchase any trust student loan
(or substitute an eligible student loan) as a result of a breach of any of its
representations and warranties relating to trust student loans contained in the sale
agreement, and the master servicer is obligated to purchase or cause the subservicer to
purchase any trust student loan pursuant to the master servicing agreement or the
subservicing agreement, as applicable, as a result of a breach of certain covenants with
respect to such trust student loan, in each case where such breach materially adversely
affects the interests of the trust in that trust student loan and is not cured within the
applicable cure period. See “Transfer and Servicing Agreements—Purchase of Student
Loans by the Depositor; Representations and Warranties of the Seller” and “Servicing
and Administration—Master Servicer Covenants” in this offering memorandum. See
also “Description of the Notes—Optional Purchase” in this offering memorandum
regarding the master servicer’s option to purchase the trust student loans when the Pool
Balance is 10% or less of the initial Pool Balance.
On the other hand, the rate of principal payments and the yield on the notes will
be affected by scheduled payments with respect to, and maturities and average lives of,
the trust student loans. These may be lengthened as a result of, among other things,
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grace periods, deferral periods, forbearance periods, or repayment term or monthly
payment amount modifications agreed to by the master servicer and required or
permitted by the Higher Education Act in accordance with its customary servicing
procedures. Therefore, payments on the notes could occur significantly later than
expected. Consequently, actual maturities and weighted average lives of the notes
could be significantly longer than expected and periodic balances could be significantly
higher than expected. The rate of principal payments on the notes and the yield on the
notes may also be affected by the rate of defaults resulting in losses on defaulted trust
student loans which have been liquidated, by the severity of those losses and by the
timing of those losses, which may affect the ability of the guarantors to make timely
guarantee payments with respect thereto. In addition, the maturity of certain of the trust
student loans could extend beyond the latest legal maturity date for the notes.
The rate of prepayments on the trust student loans cannot be predicted due to a
variety of factors, some of which are described above, and any reinvestment risks
resulting from a faster or slower incidence of prepayment of the trust student loans will
be borne entirely by the noteholders. Such reinvestment risks may include the risk that
interest rates and the relevant spreads above particular interest rate indices are lower at
the time noteholders receive payments from the trust than such interest rates and such
spreads would otherwise have been if such prepayments had not been made or had
such prepayments been made at a different time.
Annex B “Prepayments, Extensions, Weighted Average Lives and Expected
Maturities of the Notes,” attached to this offering memorandum, shows for the notes, the
weighted average lives, expected maturity dates and percentages of the original
principal balances remaining at certain distribution dates based on various assumptions.
CERTAIN LEGAL ASPECTS OF THE TRUST STUDENT LOANS
Transfer of Trust Student Loans
BANA intends that the transfer of the trust student loans by it to the depositor will
constitute a valid sale and assignment of those loans. We intend that the transfer of the
trust student loans by us to the eligible lender trustee on behalf of the trust will also
constitute a valid sale and assignment of those loans. Nevertheless, if the transfer of
the trust student loans by BANA to the depositor, or the transfer of those loans by us to
the eligible lender trustee, is deemed to be an assignment of collateral as security, then
a security interest in the trust student loans may be perfected by either taking
possession of the promissory notes or a copy of the master promissory notes
evidencing the loans, if available, or by the filing of a notice of the security interest in the
manner provided by the applicable Uniform Commercial Code, or the UCC as it is
commonly known, for perfection of security interests in accounts.
Accordingly:
•
a financing statement or statements covering the trust student loans
naming BANA, as debtor, will be filed under the UCC to protect the
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interest of the depositor in the event that the transfer by BANA is deemed
to be an assignment of collateral as security; and
•
a financing statement or statements covering the trust student loans
naming the depositor, as debtor, will also be filed under the UCC to
protect the interest of the eligible lender trustee in the event that the
transfer by the depositor is deemed to be an assignment of collateral as
security.
If the transfer of the trust student loans is deemed to be an assignment as
security for the benefit of the depositor or the trust, there are limited circumstances
under the UCC in which prior or subsequent transferees of the trust student loans could
have an interest in the trust student loans with priority over the eligible lender trustee’s
interest. A tax or other government lien on property of BANA or the depositor arising
before the time a trust student loan comes into existence may also have priority over the
interest of the depositor or the eligible lender trustee in the trust student loan. Under the
purchase agreement and sale agreement, however, BANA or the depositor, as
applicable, will warrant that it has transferred the trust student loans to the depositor or
the eligible lender trustee free and clear of the lien of any third party. In addition, BANA
and the depositor each will covenant that it will not sell, pledge, assign, transfer or grant
any lien on any trust student loan held by the trust or any interest in that loan other than
to the depositor or the eligible lender trustee. The administrator will be required to
maintain the perfected security interest status by filing all requisite continuation
statements.
Under the subservicing agreement, the subservicer as custodian will have
custody of the promissory notes evidencing the trust student loans. Although the
records of BANA, the depositor and the subservicer will be marked to indicate the sale,
and although BANA and the depositor will cause UCC financing statements to be filed
with the appropriate authorities, the trust student loans will not be physically segregated,
stamped or otherwise marked to indicate that the trust student loans have been sold to
the depositor and to the eligible lender trustee, as applicable. If, through inadvertence
or otherwise, any of the trust student loans were sold to another party that:
•
purchased the trust student loans in the ordinary course of its business;
•
took possession of the trust student loans; and
•
acquired the trust student loans for new value and without actual
knowledge of the eligible lender trustee’s interest; as the case may be,
then that purchaser might acquire an interest in the trust student loans superior to the
interest of the depositor and the eligible lender trustee.
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Consumer Protection Laws
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. Also, some state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those required
under federal law. These requirements impose specific statutory liabilities upon lenders
who fail to comply with their provisions. The requirements generally do not apply to
federally sponsored trust student loans. The depositor or the trust, however, may be
liable for violations of consumer protection laws that apply to the trust student loans,
either as assignee from BANA or the depositor or as the party directly responsible for
obligations arising after the transfer. For a discussion of the trust’s rights if the trust
student loans were not originated or serviced in compliance in all material respects with
applicable laws, see “Transfer and Servicing Agreements—Sale of Student Loans to the
Trust; Representations and Warranties of the Depositor” and “Servicing and
Administration—Master Servicer Covenants” above in this offering memorandum.
Loan Origination and Servicing Procedures Applicable to Trust Student Loans
The Higher Education Act, including the implementing regulations, imposes
specific requirements, guidelines and procedures for originating and servicing federally
sponsored student loans. Generally, those procedures require that (1) completed loan
applications be processed, (2) a determination of whether an applicant is an eligible
borrower under applicable standards be made, including a review of a financial need
analysis, (3) the borrower’s responsibilities under the loan be explained to him or her,
(4) the promissory note evidencing the loan be executed by the borrower and (5) the
loan proceeds be disbursed in a specified manner by the lender. After the loan is made,
the lender must establish repayment terms with the borrower, properly administer
deferments and forbearances and credit the borrower for payments made on the loan.
If a borrower becomes delinquent in repaying a loan, a lender or its servicing agent
must perform collection procedures, primarily telephone calls and demand letters, which
vary depending upon the length of time a loan is delinquent.
The master servicer will cause ACS to perform collection and servicing
procedures on behalf of the trust. In performing these functions, the subservicer will be
required to service and collect on the trust student loans in compliance with the Higher
Education Act, the guidelines of the applicable guarantor, and all applicable federal and
state laws and regulations. Failure of the subservicer to follow these procedures or
failure of the originator of the loan to follow procedures relating to the origination of the
trust student loans could result in adverse consequences. Any failure could result in the
U.S. Department of Education’s refusal to make reinsurance payments to the
guarantors or to make interest subsidy payments or special allowance payments to the
eligible lender trustee.
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Certain Matters Relating to Bankruptcy
If BANA were to become insolvent, were to violate applicable regulations, or if
other similar circumstances were to occur, the Federal Deposit Insurance Corporation
(the “FDIC”) could be appointed receiver or conservator of Bank of America. As
receiver or conservator, the FDIC would have various powers under the Federal Deposit
Insurance Act, including the power to repudiate any contract to which BANA was a
party, if the FDIC determined that performance of the contract was burdensome and
that repudiation would promote the orderly administration of BANA’s affairs. Among the
contracts that might be repudiated are the purchase agreement between BANA, as
seller and the depositor, the master servicing agreement and the administration
agreement relating to your notes.
Also, none of the parties to those contracts could exercise any right or power to
terminate, accelerate, or declare a default under those contracts, or otherwise affect
BANA’s rights under those contracts without the FDIC’s consent, for 90 days after the
receiver is appointed or 45 days after the conservator is appointed, as applicable.
During the same period, the FDIC’s consent would also be needed for any attempt to
obtain possession of or exercise control over any property of BANA. The requirement
to obtain the FDIC’s consent before taking these actions relating to a bank’s contracts
or property is sometimes referred to as an “automatic stay.”
The FDIC’s repudiation power would enable the FDIC to repudiate BANA’s
obligations as master servicer or administrator and any ongoing repurchase or
indemnity obligations under the purchase agreement between BANA and the depositor
and the master servicing agreement but generally would not empower the FDIC to
repudiate transfers of trust student loans made under such purchase agreement prior to
the appointment of the receiver or conservator. However, if those transfers were not
respected as legal true sales, then the depositor would be treated as having made a
loan to BANA, secured by the transferred trust student loans. The FDIC ordinarily has
the power to repudiate secured loans and then recover the collateral after paying
damages (as described further below) to the lenders.
The FDIC has adopted an interim rule that enables investors in asset-backed
securities like the notes to avoid the risk of indirect recovery of trust student loans
described above. Under the interim rule, the FDIC has stated that it will not use its
repudiation power to reclaim, recover or recharacterize a bank’s transfer of financial
assets in connection with a securitization completed on or prior to September 30, 2010,
so long as the transfer complies with specified conditions. Also, the FDIC has proposed
a rule that would provide similar, though not identical, assurances for securitizations
completed after September 30, 2010.
For this transaction, we have structured the transfers of the trust student loans
under the purchase agreement between BANA and the depositor with the intent that
they would be characterized as legal true sales. If the transfers are so characterized,
then the FDIC should not be able to recover the trust student loans using its repudiation
power even if this transaction does not satisfy the terms of the FDIC rule. However,
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complying with the FDIC rule would provide additional assurance that the FDIC would
not seek to recover the trust student loans using its repudiation power, as well as
providing additional assurance that the automatic stay would not interfere with normal
servicing and contractual payments relating to your notes.
If the FDIC were to successfully assert that this transaction does not comply with
FDIC rule and that the transfer of the trust student loans under the purchase agreement
was not a legal true sale, then the depositor would be treated as having made a loan to
BANA, secured by the trust student loans. If the FDIC repudiated that loan, the amount
of compensation that the FDIC would be required to pay would be limited to “actual
direct compensatory damages” determined as of the date of the FDIC’s appointment as
conservator or receiver. There is no statutory definition of “actual direct compensatory
damages,” but the term does not include damages for lost profits or opportunity.
The staff of the FDIC takes the position that upon repudiation these damages
would not include interest accrued to the date of actual repudiation, so the trust would
receive interest only through the date of the appointment of the FDIC as conservator or
receiver. Since the FDIC may delay repudiation for up to 180 days following that
appointment, the issuing entity may not have a claim for interest accrued during this 180
day period. In addition, in one case involving the repudiation by the Resolution Trust
Corporation, formerly a sister agency of the FDIC, of certain secured zero-coupon
bonds issued by a savings association, a United States federal district court held that
“actual direct compensatory damages” in the case of a marketable security meant the
market value of the repudiated bonds as of the date of repudiation. If that court’s view
were applied to determine the “actual direct compensatory damages” in the
circumstances described above, the amount of damages could, depending upon
circumstances existing on the date of the repudiation, be less than the principal amount
of the related securities and the interest accrued thereon to the date of payment.
Regardless of whether the applicable FDIC rule applies or the transfers under the
purchase agreement are respected as legal true sales, as conservator or receiver for
BANA the FDIC could:
•
require the trust, as assignee of the depositor, to go through an
administrative claims procedure to establish its rights to payments
collected on the trust student loans; or
•
request a stay of proceedings to liquidate claims or otherwise enforce
contractual and legal remedies against BANA; or
•
repudiate BANA’s ongoing servicing obligations under the master
servicing agreement, such as its duty to collect and remit payments or
otherwise service the trust student loans; or
•
prior to any such repudiation of the master servicing agreement, prevent
any of the indenture trustee, the eligible lender trustee, the administrator
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or the noteholders from appointing a successor master servicer based on
the commencement of the receivership or conservatorship proceeding; or
•
argue that the automatic stay prevents the indenture trustee, the eligible
lender trustee, the administrator and other transaction parties from
exercising their rights, remedies and interests for up to 90 days.
There are also statutory prohibitions on (1) any attachment or execution being
issued by any court upon assets in the possession of the FDIC, as conservator or
receiver (2) any property in the possession of the FDIC, as conservator or receiver,
being subject to levy, attachment, garnishment, foreclosure or sale without the consent
of the FDIC, and (3) the issuance of any injunction with respect to assets in the
possession of the FDIC as conservator or receiver.
If the FDIC, as conservator or receiver for BANA, were to take any of the actions
described above, distributions of principal and interest on the notes issued by the trust
could be delayed or reduced. See “Risk Factors—FDIC Receivership or
Conservatorship of BANA Could Result in Delays in Payments or Losses on Your
Notes” in this offering memorandum.
Student Loans Generally Not Subject to Discharge in Bankruptcy
FFELP loans made for qualified education expenses are generally not
dischargeable by a borrower in bankruptcy under the U.S. Bankruptcy Code, unless
excepting this debt from discharge will impose an undue hardship on the debtor and the
debtor’s dependents.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The discussion of tax issues set forth in this offering memorandum was written to
support the promotion and marketing of the transactions described in this offering
memorandum. Such discussion was not intended or written to be used, and it cannot
be used, by any person for the purpose of avoiding any federal, state or local tax
penalties that may be imposed on such person. Each investor should seek advice
based on its particular circumstances from an independent tax advisor.
The following discussion summarizes certain U.S. federal income tax
consequences to a holder who purchases the notes for cash in this offering at a price
equal to their “issue price” within the meaning of section 1273 of the Code. The notes
are expected to be issued either at their stated principal amount or with no more than a
statutorily defined de minimis amount of discount from their stated principal amount.
This discussion is limited to certain tax accounting issues and should be read in
conjunction with the section entitled “Annex D—Global Clearance, Settlement and Tax
Documentation Procedures” attached to this offering memorandum.
The following are the material U.S. federal income tax consequences of the
purchase, ownership and disposition of the notes. This discussion is general in nature
and does not address issues that may be relevant to a particular holder subject to
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special treatment under U.S. federal income tax laws (such as tax-exempt
organizations, partnerships or pass-through entities, persons holding notes as part of a
hedging, integrated, conversion or constructive sale transaction or a straddle, financial
institutions, brokers, dealers in notes or currencies and traders that elect to mark-tomarket their notes). In addition, this discussion does not consider the effect of any
alternative minimum taxes or foreign, state, local or other tax laws, or any U.S. tax
considerations (e.g., estate or gift tax), other than U.S. federal income tax
considerations, that may be applicable to particular holders. Furthermore, this
discussion assumes that holders hold notes as “capital assets” (generally, property held
for investment) within the meaning of section 1221 of the Code. This discussion also
assumes that, with respect to notes reflected on the books of a qualified business unit of
a holder, such qualified business unit is a U.S. resident.
This discussion is based on the Code and applicable Treasury regulations,
rulings, administrative pronouncements and judicial decisions thereunder as of the date
hereof, all of which are subject to change or differing interpretations at any time with
possible retroactive effect. There are no rulings or cases on similar transactions.
Moreover, the administrator does not intend to request rulings with respect to the U.S.
federal income tax treatment of the notes. Thus, there can be no assurance that the
U.S. federal income tax consequences of the notes described below will be sustained if
the relevant transactions are examined by the Internal Revenue Service (the “IRS”) or
by a court if the IRS proposes to disallow such treatment. The trust will be provided
with an opinion of federal tax counsel regarding certain U.S. federal income tax matters
discussed below. An opinion of federal tax counsel, however, is not binding on the IRS
or the courts.
Unless otherwise indicated herein, it is assumed that any holder is a U.S. tax
person, and, except as set forth below, this discussion does not address the tax
consequences of holding a note to any holder who is not a U.S. tax person. As used
herein, “U.S. tax person” means a person that is for U.S. federal income tax purposes:
•
a citizen or individual resident of the United States;
•
a corporation, including an entity treated as such, organized in or under
the laws of the United States or any state thereof or the District of
Columbia;
•
an estate the income of which is includible in gross income for U.S. federal
income tax purposes, regardless of its source; or
•
a trust whose administration is subject to the primary supervision of a U.S.
court and which has one or more U.S. tax persons who have the authority
to control all substantial decisions of the trust.
The U.S. federal income tax treatment of a partner in a partnership (including any
entity treated as a partnership for U.S. federal income tax purposes) that holds a note
will depend, among other things, upon whether or not the partner is a U.S. tax person.
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Partners and partnerships should consult their own tax advisors as to the particular
federal income tax consequences applicable to them.
To the extent provided in Treasury regulations, some trusts in existence on
August 20, 1996, and treated as U.S. tax persons prior to that date, that elect to
continue to be treated as U.S. tax persons, will be U.S. tax persons and not foreign
persons.
Tax Characterization of the Trust
Cadwalader, Wickersham & Taft LLP, federal tax counsel to the trust and the
depositor, will deliver its opinion to the trust that the trust will not be an association or a
publicly traded partnership taxable as a corporation for U.S. federal income tax
purposes. This opinion will be based on the assumption that the terms of the trust
agreement and related documents will be complied with.
Tax Consequences to Holders of Notes in General
Treatment of the Notes as Indebtedness. Cadwalader, Wickersham & Taft LLP,
federal tax counsel to the trust and the depositor, will deliver an opinion that, while the
determination of the characterization of a transfer of receivables as a sale of those
receivables or as indebtedness secured by those receivables is based on a number of
factors, no one of which is controlling, and there is no authority directly on point, the
notes will qualify as debt for U.S. federal income tax purposes. The depositor will
agree, and the noteholders will agree by their purchase of the notes, to treat the notes
as debt for U.S. federal income tax purposes. The consequences of the notes being
treated as debt for U.S. federal income tax purposes are described below. Treatment of
the notes as equity interests could have adverse tax consequences to certain holders.
For example, all or a portion of the income accrued by tax-exempt entities, including
pension funds, might be “unrelated business taxable income,” income to foreign holders
might be subject to U.S. federal income tax and U.S. federal income tax return filing and
withholding requirements, and individual holders might be subject to limitations on their
ability to deduct their shares of trust expenses, including losses. Noteholders are
strongly encouraged to consult with their own tax advisors regarding the possibility that
the notes could be treated as equity interests.
Stated Interest. Stated interest on the notes will be taxable as ordinary income
for federal income tax purposes when received or accrued in accordance with the
method of tax accounting of the holder of the notes.
Original Issue Discount. Stated interest other than qualified stated interest must
be accrued under the rules applicable to original issue discount (“OID”). Qualified
stated interest must be unconditionally payable at least annually. The interest formula
for the notes meets the requirements for “qualified stated interest” under Treasury
regulations relating to OID, except as described below.
A note will be treated as issued with OID if the excess of the note’s “stated
redemption price at maturity” over its issue price equals or exceeds a de minimis
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amount equal to one-fourth of 1 percent of the note’s stated redemption price at maturity
multiplied by the number of years to its maturity, based on the anticipated weighted
average life of the notes, calculated using the “prepayment assumption” used in pricing
the notes and weighing each payment by reference to the number of full years elapsed
from the closing date prior to the anticipated date of such payment. Generally, the issue
price of a note should be the first price at which a substantial amount of the notes is
sold to persons other than placement agents, underwriters, brokers or wholesalers. The
stated redemption price at maturity of a note is generally equal to all payments on the
note other than payments of “qualified stated interest.” Because the interest on the
notes is qualified stated interest, the stated redemption price of a note is generally
expected to equal the principal amount of the note. Any de minimis OID must be
included in income as capital gain as principal payments are received on the notes in
the proportion that each such payment bears to the original principal balance of the
note. The treatment of the resulting gain is subject to the general rules discussed under
“—Sale or Other Disposition” below.
If the notes are treated as issued with OID, a holder will be required to include
OID in income before the receipt of cash attributable to such income using a constant
yield method. The amount of OID generally includible in income is the sum of the daily
portions of OID with respect to a note for each day during the taxable year or portion of
the taxable year in which the holder holds the note. Special provisions apply to debt
instruments on which payments may be accelerated due to prepayments of other
obligations securing those debt instruments. Under these provisions, the computation
of OID on such debt instruments must be determined by taking into account both the
prepayment assumption, if any, used in pricing the debt instrument and the actual
prepayment experience. As a result of these special provisions, the amount of OID on
the notes issued with OID that will accrue in any given accrual period may either
increase or decrease depending upon the actual prepayment rate. Holders of the notes
are strongly encouraged to consult with their own tax advisors regarding the impact of
the OID rules in the event that notes are issued with OID.
Acquisition Premium. In the event a holder purchases a note issued with OID at
an acquisition premium—that is, at a price in excess of its “adjusted issue price” but less
than its stated redemption price—the amount includible in income in each taxable year
as OID is reduced by that portion of the excess properly allocable to such year. The
adjusted issue price of a note is the sum of its issue price plus prior accruals of OID,
reduced by the total payments made with respect to the note in all prior periods, other
than “qualified stated interest” payments. Acquisition premium is allocated on a pro rata
basis to each accrual of OID, so that the holder is allowed to reduce each accrual of
OID by a constant fraction.
Market Discount. The notes, whether or not issued with OID, may be subject to
the “market discount rules” of Section 1276 of the Code. In general, these rules apply if
the holder purchases the note at a market discount—that is, a discount from its stated
redemption price at maturity or, if the notes were issued with OID, adjusted issue
price—that exceeds a de minimis amount specified in the Code. If the holder acquires
the note at a market discount and (a) recognizes gain upon a disposition, or (b) receives
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payments that do not constitute qualified stated interest, the lesser of (1) such gain or
payment or (2) the accrued market discount that has not previously been included in
income, will be taxed as ordinary interest income.
Generally, market discount accrues in the ratio of stated interest allocable to the
relevant period to the sum of the interest for such period plus the remaining interest as
of the end of such period, computed taking into account the prepayment assumption, if
any, or in the case of a note issued with OID, in the ratio of OID accrued for the relevant
period to the sum of the OID accrued for that period plus the remaining OID as of the
end of such period. A holder may elect, however, to determine accrued market discount
under the constant yield method, computed taking into account the prepayment
assumption, if any. The treatment of the resulting gain is subject to the general rules
discussed under “—Sale or Other Disposition” below.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness incurred or
continued, or short-sale expenses incurred, to purchase or carry a note with accrued
market discount. A holder may elect to include market discount in gross income as it
accrues. If it makes this election, the holder will not be required to defer deductions.
Any such election will apply to all debt instruments acquired by the holder on or after the
first day of the first taxable year to which such election applies. The adjusted basis of a
note subject to such election will be increased to reflect market discount included in
gross income, thereby reducing any gain or increasing any loss on a sale or taxable
disposition.
Amortizable Bond Premium. In general, if a holder purchases a note at a
premium—that is, an amount in excess of the principal amount payable at maturity—the
holder will be considered to have purchased the note with “amortizable bond premium”
equal to the amount of such excess. A holder may elect to amortize such bond
premium as an offset to interest income and not as a separate deduction item as it
accrues under a constant yield method, or one of the other methods described above
under “—Market Discount” over the remaining term of the note, using the prepayment
assumption, if any. A holder’s tax basis in the note will be reduced by the amount of the
amortized bond premium. Any such election shall apply to all debt instruments, other
than instruments the interest on which is excludible from gross income, held by the
holder at the beginning of the first taxable year for which the election applies or
thereafter acquired and is irrevocable without the consent of the IRS. Bond premium on
a note held by a holder who does not elect to amortize the premium will decrease the
gain or increase the loss otherwise recognized on the disposition of the note.
Election to Treat all Interest as OID. A holder may elect to include in gross
income all interest with respect to the notes, including stated interest, OID, de minimis
OID, market discount, de minimis market discount, and unstated interest, as adjusted by
any amortizable bond premium or acquisition premium, using the constant yield method
described under “—Original Issue Discount” (the “accrual method election”). This
election will generally apply only to the specific note for which it was made. The accrual
method election, however, could trigger other deemed elections as described below.
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An accrual method election for a note with market discount held by a holder that has not
made an election under Section 1278(b) of the Code to include market discount in
income on a current basis will result in a deemed election under Section 1278(b) of the
Code. Such a deemed election will apply to all debt instruments with market discount
acquired by the holder during the current taxable year and all subsequent years.
Similarly, if a holder has not made an election under Section 171(c)(2) of the Code to
amortize bond premium, and the notes were determined to have amortizable bond
premium, an accrual method election will result in a deemed election under Section
171(c)(2) of the Code for all of the holder’s debt instruments with amortizable bond
premium held at the beginning of the taxable year and acquired thereafter. Neither the
market discount election under Section 1278(b) of the Code nor the bond premium
election under Section 171(c)(2) of the Code may be revoked (including where either
such election is deemed made as a result of the accrual method election) without the
permission of the IRS. Holders are strongly encouraged to consult with their own tax
advisors before making this election.
Sale or Other Disposition. If a holder of a note sells the note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder’s adjusted tax basis in the note. The adjusted tax
basis will equal the holder’s cost for the note, increased by any market discount, OID
and gain previously included by the holder in income with respect to the note, and
decreased by the amount of any bond premium previously amortized and by the amount
of principal payments previously received by the noteholder with respect to the note.
Any such gain or loss will be capital gain or loss if the note was held as a capital asset,
except for gain representing accrued interest and accrued market discount not
previously included in income. Capital gains or losses will be long-term capital gains or
losses if the note was held for more than one year. Capital losses generally may be
used only to offset capital gains.
Tax Consequences to Foreign Investors. The following information describes the
material U.S. federal income tax treatment of investors in the notes that are foreign
persons. The term “foreign person” means any person other than a U.S. tax person, as
defined above. The IRS has issued regulations that set forth procedures to be followed
by a foreign person in establishing foreign status for certain purposes. Prospective
investors are strongly encouraged to consult with their own tax advisors concerning the
requirements imposed by the regulations and their effect on the holding of the notes.
Interest (including OID) paid or accrued to a foreign person that is not effectively
connected with the conduct of a trade or business within the United States by the
foreign person will generally be considered “portfolio interest” and generally will not be
subject to U.S. federal income tax and withholding tax, as long as the foreign person:
•
is not actually or constructively a “10 percent shareholder” of BANA or a
“controlled foreign corporation” with respect to which BANA is a “related
person” within the meaning of the Code, and
108
•
provides an appropriate statement, signed under penalties of perjury,
certifying that the holder is a foreign person and providing that foreign
person’s name and address. For beneficial owners that are individuals or
entities treated as corporations, this certification may be made on IRS
Form W-8BEN. If the information provided in this statement changes, the
foreign person must report that change within 30 days of such change.
The statement generally must be provided in the year a payment occurs or
in any of the three preceding years.
If this interest were not portfolio interest, then it would be subject to U.S. federal
income and withholding tax at a current rate of 30% unless reduced or eliminated
pursuant to an applicable income tax treaty. For a description of certain documentation
requirements pertaining to such withholding tax, see “Annex D—Global Clearance,
Settlement and Tax Documentation Procedures—U.S. Federal Income Tax
Documentation Requirements” attached to this offering memorandum.
Any capital gain realized on the sale or other taxable disposition of a note by a
foreign person will be exempt from U.S. federal income and withholding tax, provided
that:
•
the gain is not effectively connected with the conduct of a trade or
business in the United States by the foreign person; and
•
in the case of an individual foreign person, the foreign person is not
present in the United States for 183 days or more in the taxable year and
certain other requirements are met.
If the interest, gain or income on a note held by a foreign person is effectively
connected with the conduct of a trade or business in the United States by the foreign
person, the holder—although exempt from the withholding tax previously discussed if a
duly executed IRS Form W-8ECI is furnished—generally will be subject to U.S. federal
income tax on the interest, gain or income at regular federal income tax rates. In
addition, if the foreign person is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its “effectively connected earnings and profits” within the
meaning of the Code for the taxable year, as adjusted for certain items, unless it
qualifies for a lower rate under an applicable tax treaty.
Information Reporting and Backup Withholding. The indenture trustee will be
required to report annually to the IRS, and to each noteholder, the amount of interest
paid on, OID accrued on, or the proceeds from the sale or other disposition of, the notes
and the amount withheld for federal income taxes, if any, for each calendar year, except
as to exempt recipients—generally, corporations, tax-exempt organizations, qualified
pension and profit-sharing trusts, individual retirement accounts, or nonresident aliens
who provide certification as to their status. Each noteholder other than one who is not
subject to the reporting requirements will be required to provide, under penalties of
perjury, a certificate containing its name, address, correct federal taxpayer identification
number (which includes a U.S. social security number), and a statement that the holder
109
is not subject to backup withholding. Should a non-exempt noteholder fail to provide the
required certification or should the IRS notify the indenture trustee or the trust that the
holder has provided an incorrect federal taxpayer identification number or is otherwise
subject to backup withholding, the indenture trustee or the trust will be required to
withhold at a prescribed rate from the interest otherwise payable to the noteholder, or
the proceeds from the sale or other disposition of the notes, and remit the withheld
amounts to the IRS as a credit against the holder’s federal income tax liability.
STATE TAX CONSEQUENCES
The above discussion does not address the tax treatment of the trust, the notes,
or the holders of the notes under any state or local tax laws. In the opinion of Delaware
tax counsel for the trust, the same characterizations of the notes and the trust would
apply for Delaware state income tax purposes as for federal income tax purposes and
noteholders who are not otherwise subject to Delaware taxation on income will not
become subject to Delaware tax solely as a result of their ownership of notes. Except
with respect to the discussion on Delaware tax in the preceding sentence, prospective
investors are urged to consult with their own tax advisors regarding the state and local
tax treatment of the trust as well as any state and local tax consequences to them of
purchasing, owning and disposing of the notes.
***
The federal and state tax discussions described above may not be
applicable depending upon each holder’s particular tax situation. Prospective
purchasers are strongly encouraged to consult with their own tax advisors as to
the tax consequences to them of purchasing, owning or disposing of notes,
including the tax consequences under state, local, foreign and other tax laws and
the possible effects of changes in federal or other tax laws.
ERISA CONSIDERATIONS
ERISA and Section 4975 of the Code impose certain restrictions on:
•
employee benefit plans as defined in Section 3(3) of ERISA;
•
certain other retirement plans and arrangements described in Section
4975 of the Code, including:
1.
individual retirement accounts and annuities,
2.
Keogh plans,
3.
collective investment funds and separate accounts and, as
applicable, insurance company general accounts in which those
plans, accounts or arrangements are invested that are subject to
the fiduciary responsibility provisions of ERISA and Section 4975 of
the Code, and
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4.
•
any other entity whose assets are deemed to be “plan assets” as a
result of any of the above plans, arrangements, funds or accounts
investing in such entity; and
persons who are fiduciaries with respect to plans in connection with the
investment of plan assets.
The term “Plans” includes the plans and arrangements listed in the first two bullet
points above.
Some employee benefit plans, such as governmental plans described in Section
3(32) of ERISA, and certain church plans described in Section 3(33) of ERISA, are not
subject to the prohibited transaction provisions of ERISA and Section 4975 of the Code.
However, these plans may be subject to the provisions of any other applicable federal
or state law, materially similar to the provisions of ERISA and Section 4975 of the Code
described in this offering memorandum. Moreover, if a plan is not subject to ERISA
requirements but is qualified and exempt from taxation under Sections 401(a) and
501(a) of the Internal Revenue Code, the prohibited transaction rules in Section 503 of
the Code will apply.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that the Plan’s investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the Code
prohibit a broad range of transactions involving assets of a Plan and persons who are
called “Parties in Interest” under ERISA and “Disqualified Persons” under the Code
(“Parties in Interest”) who have certain specified relationships to the Plan unless a
statutory, regulatory or administrative exemption is available. The trust, the depositor,
the initial purchasers, the eligible lender trustee, the indenture trustee, the master
servicer, the administrator, or any of their affiliates may be considered to be or may
become Parties in Interest with respect to certain Plans. Some Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed under
Section 4975 of the Code or a penalty imposed under Section 502(i) of ERISA, unless a
statutory or administrative exemption is available. These prohibited transactions
generally are set forth in Section 406 of ERISA and Section 4975 of the Code. In
addition, because these parties may receive certain benefits from the sales of the notes,
the purchase of the notes using Plan assets over which any of them has investment
authority should not be made if it could be deemed a violation of the prohibited
transaction rules of ERISA and the Code for which no exemption is available.
Under regulations issued by the Department of Labor called the “Plan Asset
Regulations,” if a Plan makes an “equity” investment in an entity, the underlying assets
and properties of that entity will be deemed for purposes of ERISA to be assets of the
investing Plan unless exceptions in the regulation apply. The Plan Asset Regulations
define an “equity interest” as any interest in an entity other than an instrument that is
treated as indebtedness under applicable local law and which has no substantial equity
features. If the notes are treated as debt for purposes of the Plan Asset Regulations,
111
the trust student loans and the other assets of the trust should not be deemed to be
assets of an investing Plan. If, however, the notes were treated as “equity” for purposes
of the Plan Asset Regulations, a Plan purchasing the notes could be treated as holding
the trust student loans and the other assets of the trust.
The notes should be treated as debt and not as equity interests for purposes of
the Plan Asset Regulations. However, without regard to this characterization of the
notes, prohibited transactions under Section 406 of ERISA and Section 4975 of the
Code may arise if a note is acquired by a Plan with respect to which any of the trust, the
master servicer, the administrator, the depositor, the initial purchasers, the eligible
lender trustee, the indenture trustee or certain of their affiliates is a Party in Interest
unless the transactions are subject to one or more statutory or administrative
exemptions.
Included among the administrative exemptions are the following exemptions:
•
Prohibited Transaction Class Exemption (“PTCE”) 96-23, which exempts
certain transactions effected on behalf of a Plan by an “in-house asset
manager”;
•
PTCE 90-1, which exempts certain transactions between insurance
company separate accounts and Parties in Interest;
•
PTCE 91-38, which exempts certain transactions between bank collective
investment funds and Parties in Interest;
•
PTCE 95-60, which exempts certain transactions between insurance
company general accounts and Parties in Interest; or
•
PTCE 84-14, which exempts certain transactions effected on behalf of a
Plan by a “qualified professional asset manager.”
There is also a statutory exemption that may be available under Section
408(b)(17) of ERISA and Section 4975(d)(20) of the Code to a party in interest that is a
service provider to a Plan investing in the notes for adequate consideration, provided
such service provider is not (i) the fiduciary with respect to the Plan’s assets used to
acquire the notes or an affiliate of such fiduciary or (ii) an affiliate of the employer
sponsoring the Plan. Adequate consideration means fair market as determined in good
faith by the Plan fiduciary pursuant to regulations to be promulgated by the Department
of Labor.
These administrative and statutory exemptions may not apply with respect to any
particular Plan’s investment in notes and, even if an exemption were deemed to apply, it
might not apply to all prohibited transactions that may occur in connection with the
investment. Accordingly, before making an investment in the notes, investing Plans
should determine whether the trust, the depositor, the initial purchasers, the eligible
lender trustee, the indenture trustee, the master servicer, the administrator or any of
112
their affiliates is a Party in Interest for that Plan and, if so, whether the transaction is
eligible for one or more statutory, regulatory or administrative exemptions.
***
A Plan fiduciary considering the purchase of the notes is strongly
encouraged to consult with its tax and/or legal advisors regarding whether the
assets of the trust would be considered Plan assets, the possibility of exemptive
relief from the prohibited transaction rules and other related issues and their
potential consequences. Each Plan fiduciary also should determine whether,
under the fiduciary standards of investment prudence and diversification, an
investment in the notes is appropriate for the Plan, also considering the overall
investment policy of the Plan and the composition of the Plan’s investment
portfolio, as well as whether the investment is permitted under the Plan’s
governing instruments.
ACCOUNTING CONSIDERATIONS
Various factors may influence the accounting treatment applicable to an
investor’s acquisition and holding of asset-backed securities. Accounting standards,
and the application and interpretation of such standards, are subject to change from
time to time. Before making an investment in the notes, potential investors are strongly
encouraged to consult their own accountants for advice as to the appropriate
accounting treatment for their notes.
REPORTS TO NOTEHOLDERS
On each distribution date, the calculation agent on behalf of the administrator will
provide to noteholders of record as of the record date a statement containing
substantially the same information as is required to be provided on the periodic report to
the indenture trustee, the eligible lender trustee and the trust described under “Servicing
and Administration—Statements to Indenture Trustee and Trust” in this offering
memorandum. The statements provided to noteholders will not constitute financial
statements prepared in accordance with generally accepted accounting principles and
will not be audited.
Within the prescribed period of time for tax reporting purposes after the end of
each calendar year, the indenture trustee will mail to each person, who at any time
during that calendar year was a noteholder and who received a payment from that trust,
a statement containing certain information to enable it to prepare its federal income tax
return. See “U.S. Federal Income Tax Consequences” in this offering memorandum.
The first of these quarterly distribution reports is expected to be available not
later than October 25, 2010.
Except in very limited circumstances, you will not receive these reports directly
from the trust. Instead, you will receive them through Cede & Co., as nominee of DTC
and registered holder of the notes. See “Description of the Notes—Form and
113
Denomination of the Notes—Book-Entry Registration” above in this offering
memorandum.
Neither the calculation agent nor the administrator will send reports directly to the
beneficial holders of the notes. However, these reports may be viewed at the indenture
trustee’s website at https://tss.sfs.db.com/investpublic. The reports will not be
audited nor will they constitute financial statements prepared in accordance with
generally accepted accounting principles.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the notes in Canada is being made only on a private
placement basis exempt from the requirement that we prepare and file a offering
memorandum with the securities regulatory authorities in each province where trades of
notes are made. Any resale of the notes in Canada must be made under applicable
securities laws which will vary depending on the relevant jurisdiction, and which may
require resales to be made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of the notes.
Representations of Purchasers
By purchasing notes in Canada and accepting a purchase confirmation a
purchaser is representing to us and the dealer from whom the purchase confirmation is
received that:
•
the purchaser is entitled under applicable provincial securities laws to
purchase the notes without the benefit of an offering memorandum
qualified under those securities laws;
•
where required by law, the purchaser is purchasing as principal and not as
agent;
•
the purchaser has reviewed the text above under “—Resale Restrictions;”
and
•
the purchaser acknowledges and consents to the provision of specified
information concerning its purchase of the notes to the regulatory authority
that by law is entitled to collect the information.
Further details concerning the legal authority for this information is available on
request.
114
Rights of Action—Ontario Purchasers Only
Under Ontario securities legislation, certain purchasers who purchase notes
offered by this offering memorandum during the period of distribution will have a
statutory right of action for damages, or while still the owner of the notes, for rescission
against us in the event that this offering memorandum contains a misrepresentation
without regard to whether the purchaser relied on the misrepresentation. The right of
action for damages is exercisable not later than the earlier of 180 days from the date the
purchaser first had knowledge of the facts giving rise to the cause of action and three
years from the date on which payment is made for the notes. The right of action for
rescission is exercisable not later than 180 days from the date on which payment is
made for the notes. If a purchaser elects to exercise the right of action for rescission,
the purchaser will have no right of action for damages against us. In no case will the
amount recoverable in any action exceed the price at which the notes were offered to
the purchaser and if the purchaser is shown to have purchased the notes with
knowledge of the misrepresentation, we will have no liability. In the case of an action
for damages, we will not be liable for all or any portion of the damages that are proven
to not represent the depreciation in value of the notes as a result of the
misrepresentation relied upon. These rights are in addition to, and without derogation
from, any other rights or remedies available at law to an Ontario purchaser. The
foregoing is a summary of the rights available to an Ontario purchaser. Ontario
purchasers should refer to the complete text of the relevant statutory provisions.
Enforcement of Legal Rights
All of our directors and officers as well as any experts named herein may be
located outside of Canada and, as a result, it may not be possible for Canadian
purchasers to effect service of process within Canada upon us or those persons. All or
a substantial portion of our assets and the assets of those persons may be located
outside of Canada and, as a result, it may not be possible to satisfy a judgment against
us or those persons in Canada or to enforce a judgment obtained in Canadian courts
against us or those persons outside of Canada.
Taxation and Eligibility for Investment
Canadian purchasers of notes should consult their own legal and tax advisors
with respect to the tax consequences of an investment in the notes in their particular
circumstances and about the eligibility of the notes for investment by the purchaser
under relevant Canadian legislation.
NOTICE TO INVESTORS
Each initial purchaser will represent and agree that:
•
(i) it is a person whose ordinary activities involve it in acquiring, holding,
managing or disposing of investments (as principal or agent) for the
purposes of its business and (ii) it has not offered or sold and will not offer
115
or sell the notes other than to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of investments (as
principal or as agent) for the purposes of their businesses or who it is
reasonable to expect will acquire, hold, manage or dispose of investments
(as principal or agent) for the purposes of their businesses where the
issue of the notes would otherwise constitute a contravention of Section
19 of the Financial Services and Markets Act 2000 (the “FSMA”);
•
it has only communicated or caused to be communicated and will only
communicate or cause to be communicated any invitation or inducement
to engage in investment activity, within the meaning of section 21 of the
FSMA, received by it in connection with the issue or sale of any notes in
circumstances in which section 21(1) of the FSMA does not apply to the
trust; and
•
it has complied and will comply with all applicable provisions of the FSMA
with respect to anything done by it in relation to the notes in, from or
otherwise involving the United Kingdom.
No action has been or will be taken by the depositor or the initial purchasers that
would permit a public offering of the notes in any country or jurisdiction, where action for
that purpose is required. Accordingly, the notes may not be offered or sold, directly or
indirectly, and neither this offering memorandum nor any circular, supplement, form of
application, advertisement or other material may be distributed in or from or published in
any country or jurisdiction, except under circumstances that will result in compliance
with any applicable laws and regulations. Persons into whose hands all or any part of
this offering memorandum come are required by the depositor and the initial purchasers
to comply with all applicable laws and regulations in each country or jurisdiction in which
they purchase, sell or deliver notes or have in their possession or distribute this offering
memorandum, in all cases at their own expense.
The depositor has not authorized any offer of the notes to the public in the United
Kingdom within the meaning of the FSMA. The notes may not lawfully be offered or
sold to persons in the United Kingdom except in circumstances which do not result in an
offer to the public in the United Kingdom within the meaning of these regulations or
otherwise in compliance with all applicable provisions of these regulations and the
FSMA.
LISTING INFORMATION
Application has been made to the Irish Stock Exchange for the notes to be
admitted to the official list and trading on its regulated market. We cannot assure you
that this application will be granted. For so long as the notes are listed on the Irish
Stock Exchange, copies of the indenture, the trust agreement, the forms of the notes,
the administration agreement, the master servicing agreement, the sale agreement and
the purchase agreement will be available in electronic and physical form at the offices of
the indenture trustee. So long as the notes are listed on the Irish Stock Exchange, and
116
its rules so require, the administrator will cause notices relating to the notes, including if
the notes are delisted, to be published on the Irish Stock Exchange’s website at
http://www.ise.ie. The Irish Stock Exchange will also be advised if the notes are
delisted.
The notes, the indenture and the administration agreement are governed by the
laws of the State of New York. The trust agreement is governed by the laws of the
State of Delaware.
The notes have been accepted for clearing and settlement through Clearstream,
Luxembourg and Euroclear.
Except as outlined herein, the trust has not commenced trading and no financial
statements have been produced. The issuance of the notes has been authorized by a
resolution of the board of directors of the depositor.
It is expected that the total expenses relating to the application for admission of
the notes to the official list of the Irish Stock Exchange and trading on its regulated
market will be approximately €15,000.
The address of Euroclear is 1 Boulevard Du Roi Albert II, 1210 Brussels, Belgium
and the address of Clearstream, Luxembourg is 42 Avenue J.F. Kennedy, 1855
Luxembourg, Luxembourg. The address of DTC is 55 Water Street, 50th Floor, New
York, New York 10041-0099, USA.
The trust is not and has not been involved in any governmental, legal or
arbitration proceedings (including any proceedings which are pending or threatened of
which the depositor is aware) which may have or have had in the 12 months preceding
the date of the trust’s formation a significant effect on the financial position of the trust.
As of the date of this offering memorandum, none of the trust, the eligible lender
trustee nor the indenture trustee is involved in any litigation or arbitration proceeding
relating to the issuance of the notes. The depositor is not aware of any proceedings
relating to the issuance of the notes, whether pending or threatened.
The depositor has taken all reasonable care to confirm that the information
contained in this offering memorandum is true and accurate in all material respects. In
relation to the depositor, the trust, BANA or the notes, the depositor accepts full
responsibility for the accuracy of the information contained in this offering
memorandum. Having made all reasonable inquiries, the depositor confirms that, to the
best of its knowledge, there have not been omitted material facts the omission of which
would make misleading any statements of fact or opinion contained in this offering
memorandum.
The depositor confirms that there has been no material adverse change in the
pool of loans that constitute the trust student loans since June 1, 2010, which is the
statistical cutoff date, and the date of the information with respect to the assets of the
trust set forth in this offering memorandum.
117
Reference in this offering memorandum to any website address will not be
deemed to constitute a part of this offering memorandum prepared in connection with
the listing of the notes.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of a note purchase agreement to be dated as
of the closing date (the “Note Purchase Agreement”), the notes will be purchased by
the initial purchasers listed below:
Initial Purchaser
Banc of America Securities LLC
Barclays Capital Inc.
Credit Suisse Securities (USA) LLC
J.P. Morgan Securities Inc.
RBS Securities Inc.
Total
Class A Notes
$1,034,540,000
$ 49,264,000
$ 49,264,000
$ 49,264,000
$ 49,264,000
$1,231,596,000
The proceeds to the depositor from the sale of the notes are expected to be
approximately $1,231,596,000 before deducting expenses payable by the depositor
estimated to be approximately $2,700,000, which will yield net proceeds to the depositor
of approximately $1,228,896,000.
The notes will be offered by the initial purchasers, from time to time, only to QIBs
under Rule 144A or to non-U.S. Persons pursuant to Regulation S. Until the end of any
Distribution Compliance Period, an offer or sale of the notes within the United States of
America by any dealer may violate the registration requirements of the Securities Act if
such offer or sale is made other than pursuant to Rule 144A.
The initial purchasers have agreed that, except as permitted by the Note
Purchase Agreement, they will not offer, sell or deliver the notes (1) as part of its
distribution at any time or (2) prior to the end of each Distribution Compliance Period,
within the United States of America or to, or for the account or benefit of, U.S. Persons,
and they will have sent to each affiliate to which they sell notes during the Distribution
Compliance Period a confirmation or other notice setting forth the restrictions on offers
and sales of the notes within the United States of America or to, or for the account or
benefit of, U.S. Persons.
The Note Purchase Agreement provides that the depositor and BANA will
indemnify the initial purchasers against certain civil liabilities, including liabilities under
the Securities Act and contribute to payments the initial purchasers may be required to
make in respect thereof.
RATINGS OF THE NOTES
It is a condition to the issuance and sale of the notes that they be rated at
issuance in the highest investment rating category by S&P and Moody’s. A rating is not
a recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning Rating Agency.
118
Other credit rating agencies that we have not engaged to rate the notes may
nevertheless issue unsolicited credit ratings on the notes. If any such unsolicited
ratings are issued, we cannot assure you that they will not be different from those
ratings assigned by S&P or Moody’s.
A rating addresses only the likelihood of the timely payment of stated interest and
the payment of principal at final maturity, and does not address the timing or likelihood
of principal distributions prior to final maturity.
LEGAL MATTERS
Cadwalader, Wickersham & Taft LLP, as special counsel to the seller, the trust,
the administrator, the master servicer, the sponsor and the depositor, will give opinions
on specified legal matters for the seller, the trust, the administrator, the master servicer,
the sponsor and the depositor.
Cadwalader, Wickersham & Taft LLP will give opinions on specified federal
income tax matters for the trust. Richards, Layton & Finger, P.A., as Delaware counsel
for the trust and the Delaware trustee, will give opinions on specified legal matters for
the trust, including specified Delaware state income tax matters.
Bingham McCutchen LLP will give opinions on specified legal matters for the
initial purchasers.
119
GLOSSARY
FOR OFFERING MEMORANDUM
“Adjusted Pool Balance” means, for any quarterly distribution date:
•
if the Pool Balance as of the last day of the related collection period is greater
than 40% of the initial Pool Balance, then the Adjusted Pool Balance shall be the
sum of the Pool Balance, Capitalized Interest and the Specified Reserve
Account Balance for that quarterly distribution date; or
•
if the Pool Balance as of the last day of the related collection period is less than
or equal to 40% of the initial Pool Balance, then the Adjusted Pool Balance shall
be the sum of the Pool Balance and Capitalized Interest.
“Available Funds” means, as to each distribution date or any related monthly
servicer payment date, as applicable, the sum of the following amounts with respect to
the related collection period or, in the case of a monthly servicer payment date, the
applicable portion of these amounts:
•
all collections on the trust student loans, including any guarantee payments
received on the trust student loans, but net of:
(1)
any collections in respect of principal on the trust student loans applied by
the trust to repurchase guaranteed loans from the guarantors under the
guarantee agreements;
(2)
all amounts required by the Higher Education Act to be paid to the U.S.
Department of Education or to be repaid to borrowers, whether or not in
the form of a principal reduction of the applicable trust student loan, on the
trust student loans for that collection period, including floor income rebate
fees; and
(3)
amounts deposited into the rebate account during the related collection
period;
•
any interest subsidy payments and special allowance payments with respect to
the trust student loans during that collection period;
•
all proceeds of the liquidation of defaulted trust student loans which were
liquidated during that collection period in accordance with the master servicer’s
or the subservicer’s customary servicing procedures, net of expenses incurred by
the master servicer or the subservicer related to their liquidation and any
amounts required by law to be remitted to the borrower on the liquidated student
loans, and all Recoveries on liquidated student loans which were written off in
prior collection periods or during that collection period;
120
•
the aggregate purchase amounts received during that collection period for those
trust student loans repurchased by the depositor or purchased by the master
servicer or for trust student loans sold to another eligible lender pursuant to the
master servicing agreement;
•
the aggregate purchase amounts received during that collection period for those
trust student loans repurchased by the seller;
•
the aggregate amounts, if any, received from the seller, the depositor, the master
servicer or the subservicer, as the case may be, as reimbursement of nonguaranteed interest amounts, or lost interest subsidy payments and special
allowance payments, on the trust student loans pursuant to the sale agreement
or the master servicing agreement;
•
amounts received by the trust pursuant to the master servicing agreement during
that collection period as to yield or principal adjustments;
•
any interest remitted by the indenture trustee to the collection account prior to
that distribution date or monthly servicer payment date;
•
investment earnings for that distribution date earned on amounts on deposit in
each Trust Account;
•
amounts transferred from the reserve account in excess of the Specified Reserve
Account Balance as of that distribution date;
•
amounts on deposit in the rebate account that were deposited into such account
during the collection period preceding that collection period;
•
on the closing date, the initial deposit into the collection account; and
•
on the April 2012 distribution date, all funds then on deposit in the capitalized
interest account that are transferred into the collection account on that
distribution date;
provided that if on any distribution date there would not be sufficient funds, after
application of Available Funds, as defined above, and application of amounts available
from the capitalized interest account and the reserve account, to pay any of the items
specified in clauses (a), (b), (c) and (d) under “Description of the Notes—Distributions—
Quarterly Distributions from the Collection Account” in this offering memorandum, then
Available Funds for that distribution date will include, in addition to Available Funds as
defined above, amounts on deposit in the collection account, or amounts held by the
indenture trustee, or which the administrator at the direction of the calculation agent
reasonably estimates to be held by the indenture trustee, for deposit into the collection
account which would have constituted Available Funds for the distribution date
succeeding that distribution date, up to the amount necessary to pay those items, and
Available Funds for the succeeding distribution date will be adjusted accordingly.
121
“Capitalized Interest” means, for any distribution date through and including the
April 2012 distribution date, the amount on deposit in the capitalized interest account on
the distribution date following those distributions with respect to clauses (1), (2) and (3)
under “Description of the Notes—Distributions—Quarterly Distributions from the
Collection Account” in this offering memorandum.
“Charged-Off Loan” means a trust student loan which is written-off in
accordance with the master servicer’s policies and procedures, which as of the date
hereof generally occurs on the earlier of (i) 270 days after the claim on the trust student
loan is filed or (ii) the Final Reject Date for such trust student loan.
“Clearstream, Luxembourg” means Clearstream Banking, sociéte anonyme, or
any successor thereto.
“Code” means The Internal Revenue Code of 1986, as amended.
“Definitive Note” means the Rule 144A Definitive Note or the Regulation S
Definitive Note.
“Distribution Compliance Period” has the meaning assigned to the term
“distribution compliance period” in Regulation S.
“DTC” means The Depository Trust Company, or any successor thereto.
“ERISA” means the Employee Retirement Income Security Act of 1974, as
amended.
“Euroclear” means the Euroclear System in Europe, or any successor thereto.
“European Clearing Systems” means, collectively, Clearstream, Luxembourg
and Euroclear.
“Fannie Mae” means the Federal National Mortgage Association.
“Freddie Mac” means the Federal Home Loan Mortgage Corporation.
“FFELP” means the Federal Family Education Loan Program.
“Final Reject Date” means the date of receipt of the final notice with respect to a
claim for payment on a trust student loan that is rejected by the related guarantor.
“Fitch” means Fitch, Inc., also known as Fitch Ratings, or any successor rating
agency.
“Global Note” means the Rule 144A Global Note or the Regulation S Global
Note.
“GNMA” means the Government National Mortgage Association.
122
“Interest Distribution Amount” means, for any distribution date, the sum of:
(a)
the amount of interest accrued at the interest rate for the related accrual
period on the outstanding balance of the notes on the applicable immediately preceding
distribution date (or in the case of the initial distribution date, the closing date) after
giving effect to all principal distributions to noteholders on preceding distribution dates,
and
(b)
the Note Interest Shortfall for that distribution date.
“Irish Financial Regulator” means the Irish Financial Services Regulatory
Authority.
“Irish Stock Exchange” means the Irish Stock Exchange Limited.
“Moody’s” means Moody’s Investors Service, Inc., or any successor rating
agency.
“New York City Banking Day” means any day other than a Saturday, a Sunday
or a day on which banking institutions in New York, New York are authorized or
obligated by law, regulation or executive order to remain closed.
“Note Interest Shortfall” means, for any distribution date, the sum for all of the
notes of the excess of:
(a)
the amount of interest that was payable on the preceding distribution date
to the notes, over
(b)
the amount of interest actually distributed with respect to the notes on that
preceding distribution date,
plus interest on the amount of such excess, if any, to the extent permitted by law, at the
interest rate on the notes from that preceding distribution date to the current distribution
date.
“Overcollateralization Percentage” means approximately 108.34%, calculated
to equal the sum of the initial Pool Balance and the initial deposits into the capitalized
interest account and the reserve account, each as of the closing date, divided by the
aggregate outstanding principal balance of the notes as of the closing date.
“Pool Balance” means, for any date, the aggregate principal balance of the trust
student loans on that date, including accrued interest that is expected to be capitalized,
as such balance has been reduced through such date by:
•
all payments received by the trust through that date from borrowers, the guaranty
agencies and the U.S. Department of Education;
123
•
all amounts received by the trust through that date from repurchases of the trust
student loans by the seller, the depositor or the master servicer;
•
all liquidation proceeds and Realized Losses on the trust student loans liquidated
through that date;
•
the amount of any adjustments to balances of the trust student loans made
pursuant to the master servicing agreement through that date; and
•
the amount by which guarantor reimbursements of principal on defaulted trust
student loans through that date are reduced from 100% to such other applicable
percentages as are required by the risk sharing provisions of the Higher
Education Act.
“Principal Distribution Amount” means as to each distribution date, the amount
by which (a) the aggregate outstanding principal balance of the notes immediately prior
to such distribution date exceeds (b) the Adjusted Pool Balance for that distribution date
divided by the Overcollateralization Percentage.
“QIB” means Qualified Institutional Buyer, as defined under Rule 144A.
“Rating Agency” means each of S&P and Moody’s, to the extent such rating
agency has assigned the notes a then-current rating. For the avoidance of doubt, the
definition of “Rating Agency” shall specifically exclude any other rating agency not
engaged to rate the notes that otherwise issues an unsolicited rating on the notes.
“Realized Loss” means the excess of the principal balance, including any
interest that had been or had been expected to be capitalized, of any liquidated student
loan over liquidation proceeds for a student loan to the extent allocable to principal,
including any interest that had been or had been expected to be capitalized.
“Recoveries” means, as of any date of determination, all amounts received by
the trust in respect of a Charged-Off Loan after such trust student loan became a
Charged-Off Loan.
“Regulation S” means Regulation S under the Securities Act.
“Regulation S Certificate” means each Regulation S Global Note and any
Regulation S Definitive Note.
“Regulation S Definitive Note” means Notes offered and sold in reliance on
Regulation S and represented by one or more notes in fully registered, definitive form.
“Regulation S Global Note” means Notes offered and sold in reliance on
Regulation S and represented by one or more notes in fully registered, global form.
“Rule 144A” means Rule 144A under the Securities Act.
124
“Rule 144A Certificate” means each Rule 144A Global Note and any Rule 144A
Definitive Note.
“Rule 144A Definitive Note” means Notes offered and sold to a QIB, pursuant to
Rule 144A, which will be represented by one or more notes in fully registered, definitive
form.
“Rule 144A Global Note” means Notes offered and sold to a QIB, pursuant to
Rule 144A, which will be represented by one or more notes in fully registered, global
form.
“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial
Services LLC business, or any successor rating agency.
“SEC” means the United States Securities and Exchange Commission.
“Securities Act” means the United States Securities Act of 1933, as amended.
“Significant Guarantor” means any guaranty agency that guarantees trust
student loans comprising at least 10% of the initial Pool Balance of the trust student
loans as of the statistical cutoff date.
“Specified Reserve Account Balance” means, for any distribution date, the
greater of:
(a)
0.25% of the Pool Balance as of the close of business on the last day of
the related collection period; and
(b)
$1,289,117.77;
provided that in no event will that balance exceed the sum of the aggregate outstanding
principal balance of the notes.
“Trust Accounts” means, collectively, the collection account, the capitalized
interest account, the rebate account and the reserve account.
“U.S. Person” has the meaning assigned to the term “U.S. person” in
Regulation S.
125
ANNEX A
CHARACTERISTICS OF
THE STATISTICAL TRUST STUDENT LOAN POOL
The information concerning the trust student loans presented throughout the
offering memorandum is based on the trust student loans in the statistical pool
described as of the statistical cutoff date. The statistical trust student loans consist of a
portion of the trust student loans owned by BANA that met the criteria below as of the
statistical cutoff date. The weighted average characteristics of the trust student loans
sold to the issuing entity on the closing date will be selected from the statistical trust
student loan pool. The weighted average characteristics of the trust student loans sold
to the issuing entity on the closing date may not be identical to, but will not materially
differ from, the weighted average characteristics of the statistical trust student loans in
the statistical pool illustrated in the tables below, which is presented as of the statistical
cutoff date.
The trust student loans were selected from a portfolio of student loans owned by
BANA by employing several criteria, including requirements that each trust student loan
as of the statistical cutoff date:
•
is a FFELP loan that is guaranteed as to at least (1) 98% with respect to trust
student loans with an initial date of disbursement prior to July 1, 2006 and on or
after October 1, 1993 or (2) 97% with respect to trust student loans with an initial
date of disbursement on or after July 1, 2006, of its principal and interest by a
guaranty agency under a guarantee agreement and the guaranty agency is, in
turn, reinsured by the U.S. Department of Education in accordance with the
FFELP;
•
contains terms in accordance with those required by the FFELP, the guarantee
agreements and other applicable requirements;
•
is not more than 210 days past due;
•
is fully disbursed;
•
does not have a borrower who is noted in the related records of the master
servicer or the subservicer as being currently involved in a bankruptcy
proceeding; and
•
has special allowance payments, if any, based on the three-month Commercial
Paper Rate or the 91-day treasury bill rate.
Unless otherwise specified, all information with respect to the trust student loans
is presented herein as of June 1, 2010, which is the statistical cutoff date.
The following tables provide a description of specified characteristics of the
statistical trust student loans as of the statistical cutoff date. The aggregate outstanding
A-1
principal balance of the trust student loans in each of the following tables includes the
principal balance due from borrowers, plus accrued interest to be capitalized of
$52,557,222.77 as of the statistical cutoff date.
The distribution by weighted average interest rate applicable to the statistical
trust student loans on any date following the statistical cutoff date may vary significantly
from the information shown in the following tables as a result of variations in the
effective rates of interest applicable to the trust student loans and in rates of principal
reduction. Moreover, the information below about the weighted average remaining term
to maturity of the statistical trust student loans as of the statistical cutoff date may vary
significantly from the actual term to maturity of any of the trust student loans as a result
of prepayments or the granting of deferment and forbearance periods.
The following tables also contain information concerning the total number of
loans and the total number of borrowers in the portfolio of statistical trust student loans.
Percentages and dollar amounts in any table may not total 100% or the statistical
trust student loan balance, as applicable, due to rounding.
COMPOSITION OF THE STATISTICAL TRUST STUDENT LOANS
AS OF THE STATISTICAL CUTOFF DATE
Aggregate Outstanding Principal Balance ...................................................................
Aggregate Outstanding Principal Balance—Treasury Bill ........................................
Percentage of Aggregate Outstanding Principal Balance—Treasury Bill.................
Aggregate Outstanding Principal Balance—Commercial Paper ..............................
Percentage of Aggregate Outstanding Principal Balance—Commercial
Paper .....................................................................................................................
Number of Borrowers ...................................................................................................
Average Outstanding Principal Balance Per Borrower ................................................
Weighted Average Remaining Term to Scheduled Maturity........................................
Weighted Average Annual Borrower Interest Rate......................................................
$1,289,117,766.67
$
623,615.12
0.05%
$1,288,494,151.55
$
99.95%
104,718
12,310.37
129.23 months
6.32%
The weighted average annual borrower interest rate shown in the table is
exclusive of special allowance payments. The weighted average spread for special
allowance payments to the 91-day Treasury bill rate was 2.55% as of the statistical
cutoff date.
For these purposes, the 91-day Treasury bill rate is the weighted average per
annum discount rate, expressed on a bond equivalent basis and applied on a daily
basis, for direct obligations of the United States with a maturity of thirteen weeks, as
reported by the U.S. Department of the Treasury.
The weighted average spread for special allowance payments to the three-month
commercial paper rate was 1.74% as of the statistical cutoff date. See “Federal Family
Education Loan Program—Special Allowance Payments” in Annex C to the offering
memorandum.
A-2
For these purposes, the three-month commercial paper rate is the average of the
bond equivalent rates of the three-month commercial paper (financial) rates in effect for
each of the days in a calendar quarter as reported by the Federal Reserve in
Publication H.15 (or its successor) for that calendar quarter.
DISTRIBUTION OF THE STATISTICAL TRUST
STUDENT LOANS BY INTEREST RATES
AS OF THE STATISTICAL CUTOFF DATE
Interest Rate
Less than or equal to 3.00% ............................
3.01% – 3.50%.................................................
3.51% – 4.00%.................................................
4.01% – 4.50%.................................................
4.51% – 5.00%.................................................
5.01% – 5.50%.................................................
5.51% – 6.00%.................................................
6.01% – 6.50%.................................................
6.51% – 7.00%.................................................
7.01% – 7.50%.................................................
7.51% – 8.00%.................................................
8.01% – 8.50%.................................................
Total...........................................................
Number of
Loans
39,976
234
0
0
0
0
37,525
0
187,638
0
0
8,479
273,852
Aggregate
Outstanding
Principal Balance
$152,539,672.45
1,457,999.27
0.00
0.00
0.00
0.00
133,251,700.39
0.00
887,379,615.64
0.00
0.00
114,488,778.92
$1,289,117,766.67
Percent of
Pool by
Outstanding
Principal
Balance
11.83%
0.11
0.00
0.00
0.00
0.00
10.34
0.00
68.84
0.00
0.00
8.88
100.00%
We determined the interest rates shown in the table above using the interest
rates applicable to the trust student loans as of the statistical cutoff date. Because most
of the trust student loans bear interest at variable rates of interest that reset annually
effective as of July 1 of each year, and because, as a general matter, loans with
different interest rates are likely to be repaid at different rates, this information will not
remain applicable to the trust student loans in the future. See Annex C to the offering
memorandum.
A-3
DISTRIBUTION OF THE STATISTICAL TRUST STUDENT LOANS BY
OUTSTANDING PRINCIPAL BALANCE
AS OF THE STATISTICAL CUTOFF DATE
Range of Outstanding
Principal Balance
Less than or equal to $0.00 .........................
$0.01 – $5,000.00 ........................................
$5,000.01 – $10,000.00 ...............................
$10,000.01 – $15,000.00 .............................
$15,000.01 – $20,000.00 .............................
$20,000.01 – $25,000.00 .............................
$25,000.01 – $30,000.00 .............................
$30,000.01 – $35,000.00 .............................
$35,000.01 – $40,000.00 .............................
$40,000.01 – $45,000.00 .............................
$45,000.01 – $50,000.00 .............................
$50,000.01 – $55,000.00 .............................
$55,000.01 – $60,000.00 .............................
$60,000.01 – $65,000.00 .............................
$65,000.01 – $70,000.00 .............................
$70,000.01 – $75,000.00 .............................
$75,000.01 – $80,000.00 .............................
$80,000.01 – $85,000.00 .............................
$85,000.01 – $90,000.00 .............................
Total.......................................................
Number of
Loans
1,621
186,648
67,029
12,762
1,900
1,601
910
487
516
234
91
29
14
4
2
3
0
0
1
273,852
Aggregate
Outstanding
Principal Balance
$0.00
532,303,988.99
450,538,342.41
160,345,992.65
33,063,399.13
35,895,093.84
24,843,175.69
15,784,793.50
19,149,429.96
9,918,163.49
4,271,052.34
1,505,050.95
804,916.12
248,863.10
137,500.16
221,207.08
0.00
0.00
86,797.26
$1,289,117,766.67
Percent of Pool
by Outstanding
Principal Balance
0%
41.29
34.95
12.44
2.56
2.78
1.93
1.22
1.49
0.77
0.33
0.12
0.06
0.02
0.01
0.02
0.00
0.00
0.01
100.00%
DISTRIBUTION OF THE STATISTICAL TRUST STUDENT LOANS BY
DELINQUENCY STATUS
AS OF THE STATISTICAL CUTOFF DATE
Number of Days Delinquent
Less than or equal to 0.....................................
1 – 30 ...............................................................
31 – 60 .............................................................
61 – 90 .............................................................
91 – 120 ...........................................................
121 – 150 .........................................................
151 – 180 .........................................................
181 – 210 .........................................................
Total...........................................................
Number of
Loans
240,451
10,556
6,488
4,451
2,771
3,331
4,398
1,406
273,852
A-4
Aggregate
Outstanding
Principal Balance
$1,150,712,609.72
47,378,940.49
27,118,401.85
17,252,153.20
10,981,826.32
13,051,657.38
17,503,297.18
5,118,880.53
$1,289,117,766.67
Percent of
Pool by
Outstanding
Principal
Balance
89.26%
3.68
2.10
1.34
0.85
1.01
1.36
0.40
100.00%
DISTRIBUTION OF THE STATISTICAL TRUST STUDENT LOANS BY
REMAINING TERM TO SCHEDULED MATURITY
AS OF THE STATISTICAL CUTOFF DATE1
Number of Months Remaining to
Scheduled Maturity
Less than or equal to 72...................................
73 – 81 .............................................................
82 – 90 .............................................................
91 – 99 .............................................................
100 – 108 .........................................................
109 – 117 .........................................................
118 – 126 .........................................................
127 – 135 .........................................................
136 – 144 .........................................................
145 – 153 .........................................................
154 – 162 .........................................................
163 – 171 .........................................................
172 – 180 .........................................................
181 – 189 .........................................................
190 – 198 .........................................................
199 – 207 .........................................................
208 – 216 .........................................................
217 – 225 .........................................................
226 – 234 .........................................................
235 – 243 .........................................................
244 – 252 .........................................................
253 – 261 .........................................................
262 – 270 .........................................................
271 – 279 .........................................................
280 – 288 .........................................................
289 – 297 .........................................................
298 – 306 .........................................................
307 – 315 .........................................................
316 – 324 .........................................................
325 – 333 .........................................................
334 – 342 .........................................................
343 – 351 .........................................................
352 – 360 .........................................................
Greater than or equal to 361 ............................
Total...........................................................
Number of
Loans
14,968
4,814
6,215
12,646
18,437
42,393
73,949
18,147
35,089
18,318
9,709
3,629
5,994
2,433
997
436
373
172
162
224
189
163
163
211
994
1,735
1,001
121
33
21
22
30
24
40
273,852
1
Aggregate
Outstanding Principal
Balance
$27,080,808.39
15,819,883.88
23,376,140.48
58,380,649.88
87,674,092.80
199,577,133.29
394,534,862.58
91,612,329.57
165,604,798.88
80,910,761.33
42,572,987.93
16,060,852.69
25,692,618.74
10,470,840.52
4,380,453.75
2,041,698.45
1,808,881.41
926,981.99
805,591.28
1,239,480.92
1,168,564.21
1,186,459.91
1,268,560.50
2,126,768.38
8,264,267.57
14,236,874.34
8,339,553.51
920,596.71
177,413.00
144,677.18
138,056.02
201,030.49
181,378.98
191,717.11
$1,289,117,766.67
Percent of
Pool by
Outstanding
Principal
Balance
2.10%
1.23
1.81
4.53
6.80
15.48
30.61
7.11
12.85
6.28
3.30
1.25
1.99
0.81
0.34
0.16
0.14
0.07
0.06
0.10
0.09
0.09
0.10
0.16
0.64
1.10
0.65
0.07
0.01
0.01
0.01
0.02
0.01
0.01
100.00%
We determined the weighted average remaining term to maturity shown in the table from the statistical cutoff date to the stated
maturity date of the applicable trust student loan without giving effect to any deferment or forbearance periods that may be granted
in the future. See Annex C to the offering memorandum.
A-5
DISTRIBUTION OF THE STATISTICAL TRUST STUDENT LOANS BY
CURRENT BORROWER PAYMENT STATUS
AS OF THE STATISTICAL CUTOFF DATE
Current Borrower Payment Status
In-School ............................................................
Grace..................................................................
Deferment...........................................................
Forbearance.......................................................
Repayment.........................................................
Total ............................................................
Number of
Loans
95,210
38,757
32,928
18,254
88,703
273,852
Aggregate
Outstanding Principal
Balance
$422,173,229.80
184,768,307.19
163,298,896.98
105,066,720.06
413,810,612.64
$1,289,117,766.67
Percent of
Pool by
Outstanding
Principal
Balance
32.75%
14.33
12.67
8.15
32.10
100.00%
Current borrower payment status refers to the status of the borrower of each trust
student loan as of the statistical cutoff date. The borrower:
•
may still be attending school—in-school;
•
may be in a grace period after completing school and prior to repayment
commencing—grace;
•
may have temporarily ceased repaying the loan through a deferment or a
forbearance period; or
•
may be currently required to repay the loan—repayment.
See Annex C to the offering memorandum.
The weighted average number of months in repayment for all trust student loans
currently in repayment is approximately 119.44, calculated as the maturity date less the
last payment date assuming no future deferment or forbearance periods.
A-6
SCHEDULED WEIGHTED AVERAGE REMAINING MONTHS IN
STATUS OF THE STATISTICAL TRUST STUDENT LOANS BY
CURRENT BORROWER PAYMENT STATUS
AS OF THE STATISTICAL CUTOFF DATE
Scheduled Remaining Months in Status
Current Borrower Payment Status
In-School
In-School ................................................
19.2
Grace......................................................
0.0
Deferment...............................................
0.0
Forbearance...........................................
0.0
Repayment.............................................
0.0
Grace
6.0
2.5
0.0
0.0
0.0
Deferment
0.0
0.0
14.0
0.0
0.0
Forbearance
0.0
0.0
0.0
3.6
0.0
Repayment
117.5
119.5
116.0
124.0
119.4
We have determined the scheduled weighted average remaining months in
status shown in the previous table without giving effect to any deferment or forbearance
periods that may be granted in the future. See Annex C to the offering memorandum.
A-7
GEOGRAPHIC DISTRIBUTION OF THE STATISTICAL TRUST STUDENT LOANS
AS OF THE STATISTICAL CUTOFF DATE
State
Alabama..................................................................
Alaska .....................................................................
Arizona....................................................................
Arkansas .................................................................
California.................................................................
Colorado .................................................................
Connecticut .............................................................
Delaware.................................................................
District of Columbia .................................................
Florida .....................................................................
Georgia ...................................................................
Hawaii .....................................................................
Idaho .......................................................................
Illinois ......................................................................
Indiana ....................................................................
Iowa ........................................................................
Kansas ....................................................................
Kentucky .................................................................
Louisiana.................................................................
Maine ......................................................................
Maryland .................................................................
Massachusetts ........................................................
Michigan..................................................................
Minnesota ...............................................................
Mississippi...............................................................
Missouri...................................................................
Montana ..................................................................
Nebraska.................................................................
Nevada....................................................................
New Hampshire.......................................................
New Jersey .............................................................
New Mexico ............................................................
New York ................................................................
North Carolina .........................................................
North Dakota ...........................................................
Ohio ........................................................................
Oklahoma................................................................
Oregon ....................................................................
Pennsylvania...........................................................
Rhode Island ...........................................................
South Carolina ........................................................
South Dakota ..........................................................
Tennessee ..............................................................
Texas ......................................................................
Utah ........................................................................
Vermont ..................................................................
Virginia ....................................................................
Washington .............................................................
West Virginia ...........................................................
Wisconsin................................................................
Wyoming .................................................................
Other .......................................................................
Total.................................................................
Number of
Loans
609
361
5,483
3,336
47,239
1,252
4,102
216
769
7,797
3,924
766
1,196
4,191
1,046
704
2,237
568
839
864
6,241
5,939
1,740
657
1,262
9,590
250
541
2,189
1,027
4,211
1,592
26,138
5,421
131
1,933
1,023
4,988
3,760
1,048
1,689
90
2,548
67,010
552
171
12,208
19,656
314
1,095
131
1,208
273,852
A-8
Aggregate
Outstanding
Principal Balance
$2,832,116.89
1,897,854.51
22,793,441.85
13,403,898.39
247,859,925.97
6,664,325.57
19,578,594.36
1,181,179.87
6,644,247.99
40,671,241.65
21,474,658.26
3,793,960.92
5,179,891.45
20,898,601.54
4,517,795.86
3,723,995.15
11,646,840.49
2,900,093.63
4,174,354.02
3,818,740.09
33,614,834.31
30,410,506.76
8,590,889.75
4,127,954.33
5,875,190.20
37,689,707.59
1,296,376.59
2,151,439.67
10,177,958.89
5,191,629.52
23,206,563.02
6,655,883.17
111,481,565.05
24,632,827.03
542,856.81
9,731,744.37
5,026,343.59
21,715,609.21
18,418,111.70
4,225,130.23
7,274,522.24
515,754.51
11,083,915.56
294,169,048.79
3,531,264.81
896,711.95
63,356,523.02
80,118,545.86
1,826,155.00
4,942,043.30
608,758.28
10,375,643.10
$1,289,117,766.67
Percent of Pool
by Outstanding
Principal
Balance
0.22%
0.15
1.77
1.04
19.23
0.52
1.52
0.09
0.52
3.15
1.67
0.29
0.40
1.62
0.35
0.29
0.90
0.22
0.32
0.30
2.61
2.36
0.67
0.32
0.46
2.92
0.10
0.17
0.79
0.40
1.80
0.52
8.65
1.91
0.04
0.75
0.39
1.68
1.43
0.33
0.56
0.04
0.86
22.82
0.27
0.07
4.91
6.21
0.14
0.38
0.05
0.80
100.00%
We have based the geographic distribution shown in the table on the billing
addresses of the borrowers of the trust student loans shown on the subservicer’s
records as of the statistical cutoff date.
Each of the trust student loans provides or will provide for the amortization of its
outstanding principal balance over a series of regular payments. Except as described
below, each regular payment consists of an installment of interest which is calculated on
the basis of the outstanding principal balance of the trust student loan. The amount
received is applied first to interest accrued to the date of payment and the balance of
the payment, if any, is applied to reduce the unpaid principal balance. Accordingly, if a
borrower pays a regular installment before its scheduled due date, the portion of the
payment allocable to interest for the period since the preceding payment was made will
be less than it would have been had the payment been made as scheduled, and the
portion of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if a borrower pays a monthly installment after its
scheduled due date, the portion of the payment allocable to interest for the period since
the preceding payment was made will be greater than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In addition, if a borrower pays
a monthly installment after its scheduled due date, the borrower may owe a fee on that
late payment. If a late fee is applied, that payment will be applied first to the applicable
late fee, second to interest and third to principal. As a result, the portion of the payment
applied to reduce the unpaid principal balance may be less than it would have been had
the payment been made as scheduled.
In either case, subject to any applicable deferment periods or forbearance
periods, and except as provided below, the borrower pays a regular installment until the
final scheduled payment date, at which time the amount of the final installment is
increased or decreased as necessary to repay the then outstanding principal balance of
that trust student loan.
BANA makes available, through the subservicer, to borrowers of student loans it
holds, payment terms that may result in the lengthening of the remaining term of the
student loans. For example, not all of the loans owned by BANA provide for level
payments throughout the repayment term of the loans. Some student loans provide for
interest only payments to be made for a designated portion of the term of the loans, with
amortization of the principal of the loans occurring only when payments increase in the
latter stage of the term of the loans. Other loans provide for a graduated phase in of the
amortization of principal with a greater portion of principal amortization being required in
the latter stages than would be the case if amortization were on a level payment basis.
BANA also offers, through the subservicer, an income sensitive repayment plan, under
which repayments are based on the borrower’s income. Under that plan, ultimate
repayment may be delayed up to five years. Borrowers under trust student loans will
continue to be eligible for the graduated payment and income-sensitive repayment
plans. See “BANA’s Student Loan Financing Business” in the offering memorandum.
A-9
The following tables provide certain information about trust student loans subject
to the repayment terms described in the preceding paragraphs:
DISTRIBUTION OF THE STATISTICAL TRUST STUDENT LOANS BY
LOAN TYPE AS OF THE STATISTICAL CUTOFF DATE
Loan Type
Unsubsidized Stafford Loans .............................
Subsidized Stafford Loans .................................
Grad PLUS Loans ..............................................
PLUS Loans .......................................................
Total.............................................................
Number of
Loans
119,750
145,407
3,365
5,330
273,852
Aggregate
Outstanding
Principal Balance
$618,834,482.40
554,386,595.67
60,394,815.36
55,501,873.24
$1,289,117,766.67
Percent of
Pool by
Outstanding
Principal
Balance
48.00%
43.01
4.68
4.31
100.00%
DISTRIBUTION OF THE STATISTICAL TRUST STUDENT LOANS BY
REPAYMENT TERMS AS OF THE STATISTICAL CUTOFF DATE
Loan Repayment Terms
Level Repayment (1) .........................................
Other Repayment Options (2) ...........................
Total...........................................................
Number of
Loans
265,983
7,869
273,852
Aggregate
Outstanding
Principal Balance
$1,245,182,415.86
43,935,350.81
$1,289,117,766.67
Percent of
Pool by
Outstanding
Principal
Balance
96.59%
3.41
100.00%
(1) Also includes in-school and grace loans.
(2) Includes, among others, graduated repayment and interest-only loans.
The master servicer, at the request of BANA or the depositor and on behalf of the
trust, may in the future offer repayment terms similar to those described above to
borrowers of loans in the trust who are not entitled to these repayment terms as of the
statistical cutoff date. If such repayment terms are offered to and accepted by
borrowers, the weighted average life of the securities could be lengthened.
A-10
The following table provides information about the trust student loans regarding
date of disbursement.
DISTRIBUTION OF THE STATISTICAL TRUST STUDENT LOANS BY
DATE OF DISBURSEMENT AS OF THE STATISTICAL CUTOFF DATE
Disbursement Date
Pre-January 1, 2000.........................................
January 1, 2000 through March 31, 2006 ........
April 1, 2006 through June 30, 2006................
July 1, 2006 through September 30,
2007 ..............................................................
October 1, 2007 and thereafter........................
Total...........................................................
Number of
Loans
199
36,968
3,036
Aggregate
Outstanding
Principal Balance
$623,615.12
139,887,684.72
13,417,375.58
Percent of
Pool by
Outstanding
Principal
Balance
0.05%
10.85
1.04
92,475
141,174
273,852
486,823,066.79
648,366,024.46
$1,289,117,766.67
37.76
50.30
100.00%
A-11
Guaranty Agencies for the Trust Student Loans. The eligible lender trustee has
entered into a separate guarantee agreement with each of the guaranty agencies listed
below, under which each of the guarantors has agreed to serve as guarantor for
specified trust student loans.
The following table provides information with respect to the portion of the trust
student loans guaranteed by each guarantor.
A-12
DISTRIBUTION OF THE STATISTICAL TRUST STUDENT LOANS BY
GUARANTY AGENCY AS OF THE STATISTICAL CUTOFF DATE*
Name of Guaranty Agency
California Student Aid Commission .................
Texas Guaranteed Student Loan
Corporation ...................................................
New York State Higher Education
Services Corporation ....................................
Nebraska National Student Loan
Program ........................................................
United Student Aid Funds, Inc. ........................
American Student Assistance Guarantor.........
Northwest Education Loan Association ...........
Missouri Department of Higher Education
Educational Credit Management
Corporation ...................................................
Great Lakes Higher Education Guaranty
Corporation ...................................................
Student Loan Guarantee Foundation of
Arkansas .......................................................
Office of Student Financial Assistance ............
Iowa College Student Aid Commission............
Rhode Island Higher Education
Assistance Authority .....................................
Tennessee Student Assistance
Corporation ...................................................
Illinois Student Assistance Commission ..........
New Jersey Higher Education Student
Assistance Authority .....................................
Pennsylvania Higher Education
Assistance Agency........................................
New Hampshire Higher Education Loan
Corporation ...................................................
Finance Authority of Maine ..............................
Oklahoma Guaranteed Student Loan
Program ........................................................
Kentucky Higher Education Assistance
Authority........................................................
Total...........................................................
*
**
Number of
Loans
93,698
Aggregate
Outstanding
Principal Balance
$445,205,625.30
Percent of
Pool by
Outstanding
Principal
Balance
34.54%
66,985
300,911,296.31
23.34
30,735
135,521,568.60
10.51
13,520
17,722
8,851
11,953
10,550
103,072,551.47
77,309,000.11
56,658,798.41
47,479,231.72
40,773,727.71
8.00
6.00
4.40
3.68
3.16
5,062
18,451,321.82
1.43
3,636
17,574,066.64
1.36
3,053
1,529
1,173
11,757,216.68
6,175,372.96
5,961,547.87
0.91
0.48
0.46
1,305
5,161,739.23
0.40
1,367
1,215
5,173,710.38
4,834,238.30
0.40
0.38
600
2,467,932.86
0.19
507
2,212,959.25
0.17
195
167
1,605,921.38
700,279.35
0.12
0.05
28
102,754.13
0.01
1
273,852
6,906.19
$1,289,117,766.67
Additional trust student loans may be guaranteed by a guaranty agency not listed.
Represents an interest greater than 0% but less than 0.005%.
A-13
**
100.00%
SIGNIFICANT GUARANTOR INFORMATION
The information shown for the Significant Guarantors relates to all student loans
guaranteed by the Significant Guarantors.
We obtained the following information from various sources, including from the
Significant Guarantors and/or from the Department of Education. None of the depositor,
BANA, their affiliates, the indenture trustee, the eligible lender trustee, the interim
eligible lender trustee or the initial purchasers has audited or independently verified this
information for accuracy or completeness.
CALIFORNIA STUDENT AID COMMISSION
The California Student Aid Commission (“CSAC”) is the designated state student
loan guaranty agency for the State of California (“State”), responsible for the State’s
participation in the FFELP pursuant to California Education Code Section 69760 et seq.,
and Section 428(c) of the Higher Education Act. CSAC’s role as a guaranty agency is
to provide a source of credit to assist students in meeting their post-secondary
education costs while attending eligible institutions of their choice.
CSAC began guaranteeing student loans on April 1, 1979, and as of
September 30, 2009, had cumulative principal guarantees outstanding of approximately
$38.0 billion. As authorized under California law, in 1997, CSAC established EdFund,
an auxiliary organization in the form of a nonprofit public benefit corporation to provide
operational and administrative services related to CSAC’s participation in the FFELP.
In May 2007, the State proposed the sale of, or other alternative arrangement for,
its student loan guarantee program. Chapter 182, Statutes of 2007 (Senate Bill 89)
authorized the State’s Director of Finance to act as an agent for the sale or alternative
arrangement and gave the Director of Finance broad authority over the State’s student
loan guarantee program. Any sale or transfer of the State’s guarantee program assets
and liabilities requires the approval of the U. S. Secretary of Education. If such a
transaction is consummated, it is contemplated that CSAC’s statutory responsibilities as
a guaranty agency would be repealed.
As part of the FFELP, and pursuant to the 1998 Reauthorization Amendments
to the Higher Education Act, the State established the Federal Student Loan Reserve
Fund, referred to as CSAC’s Federal Fund, and the Student Loan Operating Fund.
CSAC’s liability pursuant to the FFELP, including for any loan guarantees, is limited
solely to the amounts contained in these two funds, and the State has no obligation to
replenish these funds if exhausted.
As of September 30, 2009, CSAC’s Federal Fund and Operating Fund balances
were as follows: CSAC’s Federal Fund had total assets of $123,921,251, total liabilities
of $0 and total fund equity of $123,921,251; and CSAC’s Operating Fund had total
assets of $103,684,751, total liabilities of $35,718,432 and total fund equity of
$67,966,319.
A-14
The information in the following tables has been provided by CSAC from reports
provided by or to the U.S. Department of Education. CSAC has not verified, and makes
no representation as to the accuracy or completeness of, the information compiled by
the Department of Education or as to any calculations other than as required by federal
regulation.
Guaranty Volume: CSAC guaranteed the following amounts for the last five (5)
fiscal years ending September 30, as follows:
Federal Fiscal Year
FFELP Loan Volume............................................
2005
$6,577
2006
$6,878
2007
$6,765
2008
$8,226
2009
$10,373
As a result of the Health Care and Education Reconciliation Act of 2010, signed
by President Obama on March 30, 2010, all new loans guaranteed and disbursed under
the FFELP were eliminated and all federal student loans for higher education will be
made directly by the federal government as of July 1, 2010, rather than by private
lenders and guaranteed by a guaranty agency such as CSAC. As such, under current
law, no new FFELP loan Guaranty Volume will occur after July 1, 2010. However,
pending the outcome of any sale or alternative arrangement, CSAC will continue to
perform its obligations as the guaranty agency for the remaining outstanding loan
portfolio.
Reserve Ratio: Pursuant to 34 C.F.R. 682.419, CSAC’s reserve ratio
(determined by dividing its fund balance by the total amount of loans outstanding) for
the last five (5) fiscal years ending September 30, is as follows:
Federal Fiscal Year
Reserve Ratio .......................................................
2005
0.25%
2006
0.25%
2007
0.26%
2008
0.27%
2009
0.33%
Recovery Rate: Pursuant to 34 C.F.R. 682.409, CSAC’s recovery rate for each
of the last five (5) fiscal years ending September 30, is as follows:
Federal Fiscal Year
Recovery Rate ......................................................
2005
31.12%
2006
21.73%
2007
19.85%
2008
29.14%
2009
28.59%
Claims Rate: Pursuant to 34 C.F.R. 682.404, CSAC’s claims rate for each of
the last five (5) fiscal years ending September 30, is as follows:
Federal Fiscal Year
Claims Rate...........................................................
2005
2.81%
2006
3.01%
2007
3.31%
2008
4.16%
2009
4.06%
CSAC is located in Rancho Cordova, California. CSAC’s contact information is
10834 International Drive, Rancho Cordova, CA 95670. CSAC’s web address is
A-15
www.csac.ca.gov. EDFUND is located in Rancho Cordova, California. EDFUND’s
contact information is PO Box 419045, Rancho Cordova, CA 95741. EDFUND’s web
address is www.edfund.org.
A-16
NEW YORK STATE HIGHER EDUCATION SERVICES CORPORATION
New York State Higher Education Services Corporation (HESC) was organized
in 1975 as an agency of the State of New York, pursuant to an act of the New York
legislature, to expand educational opportunities for students. HESC administers the
New York Tuition Assistance Program (TAP) and a variety of state scholarships in
addition to acting as a guarantee agency under the FFEL Program. HESC is the
designated guarantee agency for the State of New York, and guarantees all types of
FFELP Loans.
For the FFELP, HESC has the responsibility of processing loans submitted for
guarantee, issuing loan guarantees, providing collection assistance to lenders for
delinquent loans, paying lender claims for loans in default, and collection activities on
loans after purchase by HESC. In addition to FFELP, HESC continues to perform
residual administrative activities of the State guaranteed loan program in which no new
loans have been guaranteed since 1984.
HESC has a Federal Student Loan Reserve Fund (Federal Fund) and an Agency
Operating Fund to account for FFELP activity. The Federal Fund assets, and earnings
on those assets, are restricted in use and are considered property of the U.S.
Department of Education (ED). The Agency Operating Fund is considered property of
HESC, and its assets and earnings may be used generally for guarantee agency and
other student financial aid related activities.
As of September 30, 2009, HESC had total FFEL Program assets of
approximately $172 million (including balances for both the Federal Student Loan
Reserve Fund and the Agency Operating Fund) and had a total of approximately $27.0
billion in original principal amount of loans outstanding. A recall of federal reserves was
mandated in the 1998 Reauthorization Amendments. HESC’s total share of this reserve
recall was $18,222,100 which was paid to the Department of Education in three
installments with the final payment in August 2007.
Guaranty Volume: HESC guaranteed the following amounts for the last five
federal fiscal years ending September 30 (excluding consolidation loans):
FFELP Loan Volume
Fiscal Year
($ in millions)
Guarantor
New York State Higher Education
Services Corporation ....................................
2005
2006
2007
2008
2009
$2,710.8
$2,970.4
$3,163.6
$3,551.4
$3,642.4
Reserve Ratio: A guarantee agency’s reserve ratio is determined by dividing its
Federal Student Loan Reserve Fund balance by the original principal amount of loans
A-17
outstanding. HESC’s reserve ratio for the last five federal fiscal years ending
September 30 is as follows:
Reserve Ratio
Fiscal Year
Guarantor
New York State Higher Education
Services Corporation ....................................
2005
2006
2007
2008
2009
0.25%
0.25%
0.29%
0.29%
0.30%
Claims Rate: A guaranty agency’s claims rate (a.k.a. trigger rate) is determined
by dividing the amount of federal reinsurance claims paid by ED during a federal fiscal
year by the original principal amount of loans in repayment at the end of the prior
federal fiscal year. HESC’s claims rate for each of the past five federal fiscal years
ending September 30 is as follows:
Claims Rate
Fiscal Year
Guarantor
New York State Higher Education
Services Corporation ....................................
2005
2006
2007
2008
2009
1.67%
1.50%
1.42%
1.60%
1.93%
Recovery Rate: ED calculates a guaranty agency’s recovery rate by dividing the
amount recovered from borrowers during a federal fiscal year by the guaranty agency’s
outstanding default loan portfolio (beginning inventory) at the end of the prior federal
fiscal year. HESC’s recovery rate for each of the past five federal fiscal years ending
September 30 provided below uses the ED calculation method:
Reserve Ratio
Fiscal Year
Guarantor
New York State Higher Education
Services Corporation ....................................
2005
2006
2007
2008
2009
18.50%
19.59%
26.54%
32.12%
23.64%
HESC is headquartered at 99 Washington Avenue, Albany, New York 12255. Its
most recent annual report is available on its web site, www.hesc.org.
A-18
TEXAS GUARANTEED STUDENT LOAN CORPORATION
Organization. The Texas Guaranteed Student Loan Corporation (TG) is a
Texas public non-profit corporation organized in 1980 by the Texas legislature to
operate as a guarantee agency under the Federal Family Education Loan Program
(FFELP), providing a Federally reinsured guaranty of eligible Stafford, PLUS and
consolidation student loans. Located at 301 Sundance Parkway, Round Rock, Texas
78681, TG is governed by ten directors appointed by the Governor of Texas in addition
to the State Comptroller, and is staffed by approximately 680 employees.
Guarantee Volume. Approximate annual loan guarantee volume net of
cancellations is as follows (in billions):
Federal Fiscal Year
2005......................................
2006......................................
2007......................................
2008......................................
2009......................................
Loan Guarantee Volume
Excluding
Including
Consolidation Loans
Consolidation Loans
$3.31
$5.85
$3.73
$6.04
$4.28
$5.74
$6.72
$7.38
$9.58
$9.59
Portfolio Loans. As discussed under “Risk Factors” in the offering
memorandum, loan default rates for students attending proprietary schools typically
exceed that for two-year and four-year schools. School type mix for the most current
Federal fiscal year and for the total portfolio are as follows:
School Type
Four-year ..............................
Two-year...............................
Proprietary ............................
Federal Fiscal
Year 2009
73%
6%
21%
Total Portfolio as of
September 30, 2009
78%
7%
11%
Including consolidation loans, the total portfolio as of September 30, 2009 is
comprised of 54% four year, 5% two year, 10% proprietary, and 31% consolidation.
Reserves. TG’s Reserve Ratio as reported by ED is as follows:
Federal Fiscal Year
2005......................................
2006......................................
2007......................................
2008......................................
2009......................................
Reserve Ratio
0.849%
0.735%
0.900%
0.905%
0.980%
A-19
Claims Rate. TG’s claims rate represents the percentage of Federal
reinsurance claims made by TG during a Federal fiscal year relative to TG’s portfolio of
loans designated as “in repayment” at the end of the prior Federal fiscal year. TG’s
historical claims rates are as follows:
Federal Fiscal Year
2005......................................
2006......................................
2007......................................
2008......................................
2009......................................
Claims Rate
3.48%
3.06%
3.01%
3.32%
3.40%
Federal Family Education Loan Program Developments. Recent legislation
provides for the sale of eligible FFELP loans to the U.S. Department of Education
removing them from the guarantor’s portfolio, the extent of which cannot be determined.
Enacted legislation discontinues FFELP loan originations after June 30, 2010.
No Liability to Noteholders. The information concerning TG in the offering
memorandum has been provided for the sole purpose of describing TG’s function as
guarantor of certain of the Eligible Loans. TG has no obligation or liability of any kind to
the noteholders or to pay the principal of redemption premium or interest on these
notes.
Miscellaneous. Liabilities created by TG are not debts of the State of Texas and
TG may not secure any liability with funds or assets of the State except as otherwise
provided in the final sentence of this paragraph. TG is subject to the Texas Sunset Act
(Chapter 325, Government Code) and as a result of Sunset Review completed in 2004,
the Texas Legislature enacted legislation to extend TG’s existence until September 1,
2017. If TG is abolished in a subsequent Sunset Review, the Comptroller of Public
Accounts of the State of Texas is required under the Education Code to serve as trustee
to administer the assets of TG and satisfy its outstanding obligations.
TG has not reviewed any other section of the offering memorandum and shall
have no responsibility of any information contained therein.
A-20
ANNEX B
PREPAYMENTS, EXTENSIONS, WEIGHTED AVERAGE LIVES AND EXPECTED
MATURITIES OF THE NOTES
Prepayments on pools of student loans can be measured or calculated based on
a variety of prepayment models. The model used to calculate these prepayments is the
constant prepayment rate (or “CPR”) model.
The CPR model is based on prepayments assumed to occur at a constant
percentage rate. CPR is stated as an annualized rate and is calculated as the
percentage of the loan amount outstanding at the beginning of a period (including
accrued interest to be capitalized), after applying scheduled payments, that are paid
during that period. The CPR model assumes that student loans will prepay in each
month according to the following formula:
Monthly Prepayments = Balance After Scheduled Payments x (1-(1-CPR)^1/12)
Accordingly, monthly prepayments assuming a $1,000 balance after scheduled
payments would be as follows for the percentages of CPR listed below:
CPR
Monthly Prepayment ..........
0%
$0.00
2%
$1.68
4%
$3.40
6%
$5.14
8%
$6.92
The CPR model does not purport to describe historical prepayment experience or
to predict the prepayment rate of any actual student loan pool. The student loans will
not prepay at any constant CPR, nor will all of the student loans prepay at the same
rate. You must make an independent decision regarding the appropriate principal
prepayment scenarios to use in making any investment decision.
Additional Assumptions
For purposes of calculating the information presented in the tables below, it is
assumed, among other things, that:
•
the statistical cutoff date for the trust student loans is June 1, 2010;
•
the closing date will be July 9, 2010;
•
the initial Pool Balance of the trust student loans as of the statistical cutoff
date is $1,289,117,766.67;
•
all trust student loans (as grouped within the “rep lines” described below)
remain in their current status until their status end date and then move to
repayment, with the exception of in-school status loans, which are
assumed to have a 6-month grace period before moving to repayment,
and no trust student loan moves from repayment to any other status;
B-1
•
the trust student loans that are (i) non-subsidized Stafford loans not in
repayment status, (ii) subsidized Stafford loans in forbearance status, or
(iii) SLS or PLUS loans, have interest accrued and capitalized upon
entering repayment;
•
the trust student loans that are subsidized Stafford loans and are in
in-school, grace or deferment status, have interest paid (interest subsidy
payments) by the Department of Education quarterly, based on a quarterly
calendar accrual period;
•
no delinquencies or defaults occur on any of the trust student loans, no
repurchases for breaches of representations, warranties or covenants
occur and all borrower payments are collected in full;
•
there are government payment delays of 30 days for interest subsidy and
special allowance payments;
•
index levels for calculation of borrower and government payments are:
•
a 91-day Treasury bill rate of 0.09%;
•
a three-month commercial paper rate of 0.45051%; and
•
a 1-year Treasury bill rate that equals the 91-day Treasury bill rate;
•
distributions begin on October 25, 2010, and payments are made monthly
on the 25th day of every month thereafter, whether or not the 25th is a
business day;
•
the interest rate for the class A notes at all times will be equal to
1.38925%;
•
an administration and calculation agent fee equal to $87,500 is paid
quarterly by the trust to the administrator and calculation agent, beginning
in October 2010;
•
the primary servicing fee for any month shall be 1/12 of 0.90% of the
outstanding principal balance of the trust student loans;
•
the reserve account has an initial balance equal to $3,222,794.42 and at
all times a balance equal to the greater of (1) 0.25% of the Pool Balance
and (2) $1,289,117.77;
•
the collection account has an initial balance equal to $0;
•
the capitalized interest account has an initial balance equal to
$42,000,000, on the April 2012 distribution date, all funds remaining on
deposit in the capitalized interest account will be included in Available
Funds on that distribution date;
•
all payments are assumed to be made at the end of the month and
amounts on deposit in the collection account, reserve account and
capitalized interest account, including reinvestment income earned in the
previous month, net of servicing fees, are reinvested in eligible
B-2
investments at the assumed reinvestment rate of 0.43925% per annum
through the end of the collection period, and reinvestment earnings are
available for distribution from the prior collection period;
•
prepayments on the trust student loans are applied monthly in accordance
with CPR, as described above;
•
an optional redemption by the master servicer occurs on the distribution
date immediately following the collection period during which the Pool
Balance falls below 10% of the Initial Pool Balance; and
•
the pool of trust student loans consists of 142 representative loans (“rep
lines”), which have been created for modeling purposes from individual
trust student loans based on combinations of similar individual student
loan characteristics, which include, but are not limited to, loan status,
interest rate, loan type, index, margin, rate cap and remaining term.
The following tables have been prepared based on the assumptions described
above (including the assumptions regarding the characteristics and performance of the
rep lines, which will differ from the characteristics and performance of the actual pool of
trust student loans) and should be read in conjunction therewith. In addition, the diverse
characteristics, remaining terms and loan ages of the trust student loans could produce
slower or faster principal payments than indicated in the following tables, even if the
dispersions of weighted average characteristics, remaining terms and loan ages are the
same as the assumed characteristics, remaining terms and loan ages.
CPR Tables
The following tables show the weighted average remaining lives, expected
maturity dates and percentages of original principal of the class A notes at various
percentages of CPR from the closing date until the optional redemption date.
Weighted Average Lives and Expected Maturities of the Class A Notes
at Various CPR Percentages
Weighted Average Life
(years)(1)
Class A Notes
Expected Maturity
Date
Class A Notes
0% CPR
5.93
2% CPR
5.44
4% CPR
5.00
6% CPR
4.60
8% CPR
4.24
10/25/2020
07/25/2020
04/25/2020
01/25/2020
10/25/2019
(1) The weighted average life of the notes (assuming a 360-day year consisting of twelve 30-day months) is
determined by: (1) multiplying the amount of each principal payment on the notes by the number of years from
the closing date to the related distribution date, (2) adding the results, and (3) dividing that sum by the principal
amount of the notes as of the closing date.
B-3
Class A Notes
Percentages Of Original Principal Of The Notes Remaining At Certain
Distribution Dates At Various CPR Percentages
Distribution
Date
Closing Date
October 2010
October 2011
October 2012
October 2013
October 2014
October 2015
October 2016
October 2017
October 2018
October 2019
October 2020
0% CPR
100%
99%
96%
87%
78%
68%
58%
47%
35%
23%
10%
0%
2% CPR
100%
98%
93%
82%
72%
62%
51%
40%
29%
18%
7%
0%
4% CPR
100%
98%
91%
78%
67%
56%
45%
34%
24%
14%
4%
0%
B-4
6% CPR
100%
97%
88%
74%
62%
50%
39%
29%
19%
10%
2%
0%
8% CPR
100%
96%
85%
70%
57%
45%
34%
24%
15%
7%
0%
0%
ANNEX C
FEDERAL FAMILY EDUCATION LOAN PROGRAM
General
The Federal Family Education Loan Program, known as the FFELP, under Title
IV of the Higher Education Act, provides for loans to students who are enrolled in
eligible institutions, or to parents of dependent students, to finance their educational
costs. Payment of principal and interest on the trust student loans is guaranteed by a
state or not-for-profit guaranty agency against:
•
default of the borrower;
•
the death, bankruptcy or permanent, total disability of the borrower;
•
closing of the borrower’s school prior to the end of the academic period;
•
false certification by the borrower’s school of his eligibility for the loan; and
•
an unpaid school refund.
In addition to the guarantee payments, the holder of student loans is entitled to
receive interest subsidy payments and special allowance payments from the U.S.
Department of Education (which we refer to as the U.S. Department of Education) on
eligible student loans.
Special allowance payments raise the interest rate of return to student loan
lenders when the statutory borrower interest rate is below an indexed market value.
Subject to certain conditions, a program of federal reinsurance under the Higher
Education Act entitles guaranty agencies to reimbursement from the U.S. Department of
Education for between 75% and 100% of the amount of each guarantee payment.
Four types of student loans are currently authorized under the Higher Education
Act:
•
Subsidized Stafford Loans to students who demonstrate requisite financial
need;
•
Unsubsidized Stafford Loans to students who either do not demonstrate
financial need or require additional loans to supplement their Subsidized
Stafford Loans;
•
Parent Loans for Undergraduate Students, known as “PLUS Loans,” to
parents of dependent students whose estimated costs of attending school
exceed other available financial aid; and
C-1
•
Consolidation Loans, which consolidate into a single loan a borrower’s
obligations under various federally authorized student loan programs.
Before July 1, 1994, the Higher Education Act also authorized loans called
“Supplemental Loans to Students” or “SLS Loans” to independent students and, under
some circumstances, dependent undergraduate students, to supplement their
Subsidized Stafford Loans. The Unsubsidized Stafford Loan program replaced the SLS
program.
This appendix and the offering memorandum describe or summarize the material
provisions of the Higher Education Act, the FFELP and related statutes and regulations.
They, however, are not complete and are qualified in their entirety by reference to each
actual statute and regulation. Both the Higher Education Act and the related regulations
have been the subject of extensive amendments. Accordingly, we cannot predict
whether future amendments or modifications might materially change any of the
programs described in this appendix or the statutes and regulations that implement
them.
Legislative Developments
On March 30, 2010, the Health Care and Education Reconciliation Act of 2010
(the “Reconciliation Act”) was enacted into law. Effective July 1, 2010, the
Reconciliation Act eliminated FFELP. The terms of existing FFELP loans are not
materially affected by the Reconciliation Act.
Legislative Matters
The FFELP was subject to comprehensive reauthorization every 5 years and to
frequent statutory and regulatory changes. The most recent reauthorization was the
Higher Education Reconciliation Act of 2005, which was signed into law February 8,
2006 as part of the Deficit Reduction Act, Public Law 109-171. The 2005
reauthorization extended the U.S. Department of Education’s authority to provide
federal insurance on loans, make subsidized loans and make consolidation loans
through September 30, 2012. Several provisions of the Higher Education Act governing
the FFELP were also amended, including (i) an increase in the annual Stafford loan
limits for first and second year undergraduate students, (ii) the reduction of
reimbursement due to servicers deemed as exceptional performers from 100% to 99%,
(iii) requiring lenders to pay the U.S. Department of Education interest paid by
borrowers that exceed the special allowance support levels applicable to such loans,
(iv) deferment eligibility for a borrower who is on active military or other qualifying
service duty, (v) the increase in forgiveness amounts for certain teachers and (vi) the
availability of PLUS loans to graduate and professional students.
On September 27, 2007, the President of the United States signed the “College
Cost Reduction and Access Act of 2007,” Public Law 110-84, into law, which, by
amending the Higher Education Act of 1965, eliminated certain government subsidies to
education lenders. The legislation also included provisions that: (1) phased in cuts in
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the interest rate charged to undergraduate student borrowers on subsidized FFELP
loans from 6.8%, which rate became effective in July 2006, to 3.4%, in July 2012,
(2) reduced the Federal Family Education Loan Program lender insurance percentage
to 95% of the unpaid balance of such FFELP loans disbursed on or after October 1,
2012, (3) reduced special allowance payments made to FFELP lenders and
(4) eliminated the “exceptional performance” status for lenders, servicers and guaranty
agencies as of October 1, 2007.
The U.S. Department of Education amended the FFELP regulations on
November 1, 2007.
On May 21, 2008, the U.S. Department of Education announced that it will
implement a program under the recently enacted “Ensuring Continued Access to
Student Loan Act of 2008” (P.L. 110-227) to purchase certain FFELP loans and to
provide liquidity to FFELP lenders. Under the program, the U.S. Department of
Education will purchase, until September 30, 2009, eligible FFELP loans originated
between May 1, 2008 and June 30, 2009 at a purchase price equal to the sum of (i) par
value, (ii) accrued interest (net of special allowance payments), (iii) the 1% origination
fee paid to the U.S. Department of Education, and (iv) a fixed amount of $75.00 per
loan. Also, the U.S. Department of Education will provide liquidity until September 30,
2009 by purchasing participation interests in pools of eligible FFELP loans at a price
that will yield the U.S. Department of Education the commercial paper rate plus 50 basis
points. Details of the program are available in the Federal Register.
In 1993, Congress created the William D. Ford Federal Direct Loan Program
(“FDLP”) pursuant to which Stafford, PLUS and Consolidation Loans may be funded
directly by the United States Department of the Treasury as well as by private lenders
under the FFELP.
The Higher Education Amendments of 1998 extended the principal provisions of
the FFELP and the FDLP to October 1, 2004, which was extended through federal fiscal
year 2005 by Public Law 108-366. The 1998 reauthorization, as modified by the Ticket
to Work and Work Incentives Improvement Act of 1999, lowered both the borrower
interest rate on Stafford Loans to a formula based on the 91-day treasury bill rate plus
2.3% (1.7% during in-school and grace periods) and the lender’s rate after special
allowance payments to the 91-day treasury bill rate plus 2.8% (2.2% during in-school
and grace periods) for loans originated on or after October 1, 1998 and before July 1,
2003. The borrower interest rate on PLUS loans originated during this period is equal to
the 91-day treasury bill rate plus 3.1%.
The 1999 act changed the financial index on which special allowance payments
are computed on new loans from the 91-day treasury bill rate to the three-month
Commercial Paper Rate (financial) for FFELP loans disbursed on or after January 1,
2000 and before July 1, 2003. For these FFELP loans, the special allowance payments
to lenders are based upon the three-month commercial paper (financial) rate plus
2.34% (1.74% during in-school and grace periods). The 1999 act did not change the
rate that the borrower pays on FFELP loans.
C-3
The Consolidated Appropriations Act of 2001 changed the financial index on
which the interest rate for some borrowers of SLS and PLUS loans are computed. The
index was changed from the 1-year treasury bill rate to the weekly average one-year
constant maturity Treasury yield. This change was effective beginning in July 2001.
Public Law 107-139, dated February 8, 2002, amended the Higher Education Act
to (i) extend current borrower interest rates for student or parent loans with a first
disbursement before July 1, 2006 and for consolidation loans with an application
received by the lender before July 1, 2006, (ii) establish fixed borrower interest rates on
student loans made on or after July 1, 2006 and (iii) extend the computation of special
allowance payments based on the three-month commercial paper (financial) index.
Other amendments since the 1998 reauthorization include Public Law 108-98,
dated October 10, 2003, Public Law 108-409, dated October 30, 2004, and the Third
Higher Education Extension Act of 2006, Public Law 109-292, dated September 30,
2006.
We cannot predict whether further changes will be made to the Higher Education
Act in future legislation or the effect of such additional legislation on the sponsor’s
student loan program or the trust student loans.
Eligible Lenders, Students and Educational Institutions
Lenders eligible to make loans under the FFELP generally include banks,
savings and loan associations, credit unions, pension funds and, under some
conditions, schools and guarantors. A student loan may be made to, or on behalf of, a
“qualified student.” A “qualified student” is an individual who
•
is a United States citizen, national or permanent resident;
•
has been accepted for enrollment or is enrolled and is maintaining
satisfactory academic progress at a participating educational institution;
•
is carrying at least one-half of the normal full-time academic workload for
the course of study the student is pursuing; and
•
meets the financial need requirements for the particular loan program.
Eligible schools include institutions of higher education, including proprietary
institutions, meeting the standards provided in the Higher Education Act. For a school
to participate in the program, the U.S. Department of Education must approve its
eligibility under standards established by regulation.
Financial Need Analysis
Subject to program limits and conditions, student loans generally are made in
amounts sufficient to cover the student’s estimated costs of attending school, including
tuition and fees, books, supplies, room and board, transportation and miscellaneous
C-4
personal expenses as determined by the institution. Each Stafford Loan applicant (and
parents in the case of a dependent child) must undergo a financial need analysis. This
requires the applicant (and parents in the case of a dependent child) to submit financial
data to a federal processor. The federal processor evaluates the parents’ and student’s
financial condition under federal guidelines and calculates the amount that the student
and the family are expected to contribute towards the student’s cost of education. After
receiving information on the family contribution, the institution then subtracts the family
contribution from the student’s costs to attend the institution to determine the student’s
need for financial aid. Some of this need is met by grants, scholarships, institutional
loans and work assistance. A student’s “unmet need” is further reduced by the amount
of Stafford Loans for which the borrower is eligible.
Special Allowance Payments
The Higher Education Act provides for quarterly special allowance payments to
be made by the U.S. Department of Education to holders of student loans to the extent
necessary to ensure that they receive at least specified market interest rates of return.
The rates for special allowance payments depend on formulas that vary according to
the type of loan, the date the loan was made and the type of funds, tax-exempt or
taxable, used to finance the loan. The U.S. Department of Education makes a special
allowance payment for each calendar quarter, generally within 45 to 60 days after the
receipt of a bill from the lender.
The special allowance payment equals the average unpaid principal balance,
including interest which has been capitalized, of all eligible loans held by a holder during
the quarterly period multiplied by the special allowance percentage.
For student loans disbursed before January 1, 2000, the special allowance
percentage is computed by:
(1) determining the average of the bond equivalent rates of 91-day
Treasury bills auctioned for that quarter;
(2) subtracting the applicable borrower interest rate;
(3) adding the applicable special allowance margin described in the table
below; and
(4) dividing the resultant percentage by 4.
If the result is negative, the special allowance payment is zero.
C-5
Date of First Disbursement
Before 10/17/86.........................................
From 10/17/86 through 09/30/92 ..............
From 10/01/92 through 06/30/95 ..............
From 07/01/95 through 06/30/98 ..............
From 07/01/98 through 12/31/99 ..............
Special Allowance Margin
3.50%
3.25%
3.10%
2.50% for Stafford Loans that are in In-School, Grace or
Deferment
3.10% for Stafford Loans that are in Repayment and all other
loans
2.20% for Stafford Loans that are in In-School, Grace or
Deferment
2.80% for Stafford Loans that are in Repayment and
Forbearance
3.10% for PLUS, SLS and Consolidation Loans
For student loans disbursed after January 1, 2000, the special allowance
percentage is computed by:
(1) determining the average of the bond equivalent rates of 3-month
commercial paper (financial) rates quoted for that quarter;
(2) subtracting the applicable borrower interest rate;
(3) adding the applicable special allowance margin described in the table
below; and
(4) dividing the resultant percentage by 4.
If the result is negative, the special allowance payment is zero.
Date of First Disbursement
From 01/01/00 through 09/30/07 ...............
From 10/01/07 and after.............................
Special Allowance Margin
1.74% for Stafford Loans that are in In-School, Grace or
Deferment
2.34% for Stafford Loans that are in Repayment and
Forbearance
2.64% for PLUS and Consolidation Loans
1.19% for Stafford Loans that are In-School, Grace or
Deferment
1.79% for Stafford Loans that are in Repayment and PLUS
2.09% for Consolidation Loans
For student loans disbursed on or after April 1, 2006, lenders are required to pay
the U.S. Department of Education any interest paid by borrowers on student loans that
exceeds the special allowance support levels applicable to such loans.
Special allowance payments are available on variable rate PLUS Loans and SLS
Loans only if the variable rate, which is reset annually, exceeds the applicable
maximum borrower rate. The variable rate is based on the weekly average one-year
constant maturity Treasury yield for loans made before July 1, 1998 and based on the
91-day Treasury bill for loans made on or after July 1, 1998. The maximum borrower
rate for these loans is between 9% and 12%. Effective July 1, 2006, this limitation on
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special allowance payments for PLUS Loans made on and after January 1, 2000 was
repealed.
Fees
Origination Fee. An origination fee must be paid to the U.S. Department of
Education for all Stafford and PLUS Loans originated in the FFELP. An origination fee
is not paid on a Consolidation Loan. A 3% origination fee must be deducted from the
amount of each PLUS Loan.
An origination fee may be, but is not required to be, deducted from the amount of
a Stafford Loan according to the following table:
Date of First Disbursement
Before 07/01/06.......................................................
From 07/01/06 through 06/30/07 ............................
From 07/01/07 through 06/30/08 ............................
From 07/01/08 through 06/30/09 ............................
From 07/01/09 through 06/30/10 ............................
Maximum Origination Fee
3.0%
2.0%
1.5%
1.0%
0.5%
Federal Default Fee. A federal default fee up to 1% (previously called an
insurance premium) may be, but is not required to be, deducted from the amount of a
Stafford or PLUS Loan. A federal default fee is not deducted from the amount of a
Consolidation Loan.
Lender Loan Fee. A lender loan fee is paid to the U.S. Department of Education
on the amount of each loan disbursement of all FFELP loans. For loans disbursed from
October 1, 1993 to September 30, 2007, the fee was 0.50% of the loan amount. The
fee increased to 1% of the loan amount for loans disbursed on or after October 1, 2007.
Loan Rebate Fee. A loan rebate fee of 1.05% is paid annually on the unpaid
principal and interest of each Consolidation Loan disbursed on or after October 1, 1993.
This fee was reduced to 0.62% for loans made from October 1, 1998 to January 31,
1999.
Stafford Loan Program
For Stafford Loans, the Higher Education Act provides for:
•
federal insurance or reinsurance of Stafford Loans made by eligible
lenders to qualified students;
•
federal interest subsidy payments on Subsidized Stafford Loans paid by
the U.S. Department of Education to holders of the loans in lieu of the
borrowers’ making interest payments; and
•
special allowance payments representing an additional subsidy paid by
the U.S. Department of Education to the holders of eligible Stafford Loans.
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We refer to all three types of assistance as “federal assistance.”
Interest. The borrower’s interest rate on a Stafford Loan can be fixed or variable.
Stafford Loan interest rates are presented below.
Trigger Date
Before 10/01/81.........................
From 01/01/81 through
09/12/83 .................................
From 09/13/83 through
06/30/88 .................................
From 07/01/88 through
09/30/92 .................................
Borrower Rate
7%
From 10/01/92 through
06/30/94 .................................
91-day Treasury
+ Interest Rate
Margin
91-day Treasury
+ Interest Rate
Margin
91-day Treasury
+ Interest Rate
Margin
91-day Treasury
+ Interest Rate
Margin
6.8%
From 07/01/94 through
06/30/95 .................................
From 07/01/95 through
06/30/98 .................................
From 07/01/98 through
06/30/06 .................................
From 07/01/06 through
06/30/08 .................................
From 07/01/08 through
06/30/09 .................................
From 07/01/09 through
06/30/10 .................................
9%
Maximum
Borrower Rate
N/A
N/A
8%
8% for 48
months;
thereafter, 91day Treasury +
Interest Rate
Margin
6.0% for
undergraduate
subsidized loans;
and 6.8% for
unsubsidized
loans and
graduate
subsidized loans
5.6% for
undergraduate
subsidized loans;
and 6.8% for
unsubsidized
loans and
graduate loans
C-8
N/A
8% for 48 months, then
10%
9%
8.25%
8.25%
8.25%
N/A
Interest Rate Margin
N/A
N/A
N/A
3.25% for loans made
before 7/23/92 and for
loans made on or
before 10/1/92 to new
student borrowers;
3.10% for loans made
after 7/23/92 and
before 7/1/94 to
borrowers with
outstanding FFELP
loans
3.10%
3.10%
2.50% (In-School,
Grace or Deferment);
3.10% (Repayment)
1.70% (In-School,
Grace or Deferment);
2.30% (Repayment)
N/A
6.0%, 6.8%
N/A
5.6%, 6.8%
N/A
The rate for variable rate Stafford Loans applicable for any 12-month period
beginning on July 1 and ending on June 30 is determined on the preceding June 1 and
is equal to the lesser of:
•
the applicable maximum borrower rate,
and
•
the sum of:
•
the bond equivalent rate of 91-day Treasury bills auctioned at the final
auction held before that June 1,
and
•
the applicable interest rate margin.
Interest Subsidy Payments. The U.S. Department of Education is responsible for
paying interest on Subsidized Stafford Loans:
•
while the borrower is a qualified student;
•
during the grace period; and
•
during prescribed deferment periods.
The U.S. Department of Education makes quarterly interest subsidy payments to
the owner of a Subsidized Stafford Loan in an amount equal to the interest that accrues
on the unpaid balance of that loan before repayment begins or during any deferment
periods. The Higher Education Act provides that the owner of an eligible Subsidized
Stafford Loan has a contractual right against the United States to receive interest
subsidy and special allowance payments. However, receipt of interest subsidy and
special allowance payments is conditioned on compliance with the requirements of the
Higher Education Act, including the following:
•
satisfaction of need criteria; and
•
continued eligibility of the loan for federal insurance or reinsurance.
If the loan is not held by an eligible lender in accordance with the requirements of
the Higher Education Act and the applicable guarantee agreement, the loan may lose its
eligibility for federal assistance.
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Lenders generally receive interest subsidy payments within 45 days to 60 days
after the submission of the applicable data for any given calendar quarter to the U.S.
Department of Education. However, there can be no assurance that payments will, in
fact, be received from the U.S. Department of Education within that period.
Loan Limits. The Higher Education Act generally requires that lenders disburse
student loans in at least two equal disbursements. The Higher Education Act limits the
amount a student can borrow in any academic year. The following chart shows current
and historic loan limits.
Independent Students
Dependent Students
Subsidized
Subsidized
Subsidized
and
and
and
Unsubsidized Unsubsidized Unsubsidized
on or after
on or after
on or after
Borrower’s
10/1/93
7/1/07
7/1/08
Academic Level
Undergraduate (per
year):
1st year
$ 2,625
$ 3,500
$ 5,500
2nd year
$ 3,500
$ 4,500
$ 6,500
3rd year and
above
$ 5,500
$ 5,500
$ 7,500
Graduate (per
year)
$ 8,500
$ 8,500
$ 8,500
Aggregate Limit:
Undergraduate
$23,000
$23,000
$31,000
Graduate
(including
$65,500
$65,500
undergraduate) $65,500
Additional
Additional
Additional
Unsubsidized Unsubsidized Unsubsidized
only on
only on
only on
or after
or after
or after
7/1/94
7/1/07
7/1/08
$ 4,000
$ 4,000
$ 4,000
$ 4,000
$ 4,000
$ 4,000
$ 9,500
$ 10,500
$ 5,000
$ 5,000
$ 5,000
$ 12,500
$10,000
$12,000
$12,000
$ 20,500
$23,000
$23,000
$26,500
$ 57,500
$73,000
$73,000
$73,000
$138,500
For the purposes of the table above:
•
The loan limits include both FFELP and FDLP loans.
•
The amounts in the final column represent the combined maximum loan
amount per year for Subsidized and Unsubsidized Stafford Loans.
Accordingly, the maximum amount that a student may borrow under an
Unsubsidized Stafford Loan is the difference between the combined
maximum loan amount and the amount the student received in the form of
a Subsidized Stafford Loan.
•
Independent undergraduate students, graduate students and professional
students may borrow the additional amounts shown in the third and fourth
columns. Dependent undergraduate students may also receive these
additional loan amounts if their parents are unable to provide the family
contribution amount and cannot qualify for a PLUS Loan.
•
Students attending certain medical schools are eligible for $38,500
annually and $189,000 in the aggregate.
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Maximum
Annual
Total
Amount
•
The annual loan limits are sometimes reduced when the student is
enrolled in a program of less than one academic year or has less than a
full academic year remaining in his program.
Repayment. Repayment of principal on a Stafford Loan does not begin while the
borrower remains a qualified student, but only after a 6-month grace period. In general,
each loan must be scheduled for repayment over a period of not more than 10 years
after repayment begins. New borrowers on or after October 7, 1998 who accumulate
FFELP loans totaling more than $30,000 in principal and unpaid interest are entitled to
extend repayment for up to 25 years, subject to minimum repayment amounts.
Consolidation Loan borrowers may be scheduled for repayment up to 30 years
depending on the borrower’s indebtedness. Outlined in the table below are the
maximum repayment periods available based on the outstanding FFELP indebtedness.
Outstanding FFELP Indebtedness
$7,500-$9,999 ..................................................................
$10,000-$19,999 ..............................................................
$20,000-$30,000 ..............................................................
$30,001-$59,999 ..............................................................
$60,000 or more...............................................................
Maximum Repayment Period
12 Years
15 Years
20 Years
25 Years
30 Years
Note: Maximum repayment period excludes authorized periods of deferment and
forbearance.
In addition to the outstanding FFELP indebtedness requirements described
above, the Higher Education Act currently requires minimum annual payments of $600,
unless the borrower and the lender agree to lower payments, except that negative
amortization is not allowed. The Higher Education Act and related regulations require
lenders to offer a choice among standard, graduated, income-sensitive and extended
repayment schedules, if applicable, to all borrowers entering repayment. The 2007
legislation introduces an income-based repayment plan on July 1, 2009 that a student
borrower may elect during a period of partial financial hardship and have annual
payments that do not exceed 15% of the amount by which adjusted gross income
exceeds 150% of the poverty line. The Secretary repays or cancels any outstanding
principal and interest under certain criteria after 25 years.
Grace Periods, Deferment Periods and Forbearance Periods. After the borrower
stops pursuing at least a half-time course of study, he generally must begin to repay
principal of a Stafford Loan following the grace period. However, no principal
repayments need be made, subject to some conditions, during deferment and
forbearance periods.
For borrowers whose first loans are disbursed on or after July 1, 1993,
repayment of principal may be postponed:
•
while the borrower returns to school at least half-time or is enrolled in an
approved graduate fellowship program or rehabilitation program;
C-11
•
when the borrower is seeking, but unable to find, full-time employment,
subject to a maximum deferment of three years; or
•
when the lender determines that repayment will cause the borrower
“economic hardship,” as defined in the Higher Education Act, subject to a
maximum deferment of three years.
For loans with a disbursement made on or after July 1, 2001, a borrower who is
serving on active military duty during a war or other military operation or national
emergency, or performing qualifying National Guard duty during a war or other military
operation or national emergency is eligible for deferment for up to three years. Math,
science and special education teachers, with loans disbursed on or after October 1,
1998 are now eligible for increased forgiveness amounts of up to $17,500.
Interest that accrues during a deferment is paid by the U.S. Department of
Education for Subsidized Stafford Loans or deferred and capitalized for Unsubsidized
Stafford Loans.
The Higher Education Act also permits, and in some cases requires,
“forbearance” periods from loan collection in some circumstances. Interest that accrues
during a forbearance period is never subsidized. When a borrower ends forbearance
and enters repayment, the account is considered current.
PLUS and SLS Loan Programs
The Higher Education Act authorizes (i) PLUS Loans to be made to parents of
eligible dependent students and graduate and professional students and (ii) previously
authorized SLS Loans to be made to the categories of students now served by the
Unsubsidized Stafford Loan program. Only parents or graduate or professional
students who have no adverse credit history or who are able to secure an endorser
without an adverse credit history are eligible for PLUS Loans. The basic provisions
applicable to PLUS and SLS Loans are similar to those of Stafford Loans for federal
insurance and reinsurance. However, interest subsidy payments are not available
under the PLUS and SLS programs and, in some instances, special allowance
payments are more restricted.
Loan Limits. PLUS and SLS Loans disbursed before July 1, 1993 were limited to
$4,000 per academic year with a maximum aggregate amount of $20,000. The annual
loan limits for SLS Loans disbursed on or after July 1, 1993 range from $4,000 for first
and second year undergraduate borrowers to $10,000 for graduate borrowers, with a
maximum aggregate amount of $23,000 for undergraduate borrowers and $73,000 for
graduate and professional borrowers.
The annual and aggregate amounts of PLUS Loans first disbursed on or after
July 1, 1993 are limited only to the difference between the cost of the student’s
education and other financial aid received, including scholarship, grants and other
student loans.
C-12
Interest. The interest rates for PLUS Loans and SLS Loans are presented in the
chart below.
For PLUS or SLS Loans that bear interest based on a variable rate, the rate is
set annually for 12-month periods, from July 1 through June 30, on the preceding
June 1 and is equal to the lesser of:
•
the applicable maximum borrower rate;
and
•
the sum of:
•
the applicable 1-year Index or the bond equivalent rate of 91-day Treasury
bills, as applicable;
and
•
the applicable interest rate margin.
Under current law, PLUS Loans with a first disbursement on or after July 1, 2006
will return to a fixed annual interest rate of 8.5%.
Until July 1, 2001, the 1-year index was the bond equivalent rate of 52-week
Treasury bills auctioned at the final auction held prior to each June 1. Beginning July 1,
2001, the 1-year index is the weekly average 1-year constant maturity Treasury, as
published by the Board of Governors of the Federal Reserve System, for the last
calendar week ending on or before the June 26 immediately preceding the July 1 reset
date.
Trigger Date
Before 10/01/81............................
From 10/01/81 through
10/30/82 ....................................
From 11/01/82 through
06/30/87 ....................................
From 07/01/87 through
09/30/92 ....................................
From 10/01/92 through
06/30/94 ....................................
From 07/01/94 through
06/30/98 ....................................
From 07/01/98 through
06/30/06 ....................................
From 07/01/06..............................
Borrower Rate
9%
Maximum
Borrower
Rate
N/A
14%
N/A
N/A
12%
N/A
N/A
3.25%
1-year Index + Interest Rate Margin
1-year Index + Interest Rate Margin
12%
PLUS 10%,
SLS 11%
Interest
Rate
Margin
N/A
3.10%
3.10%
1-year Index + Interest Rate Margin
91-day Treasury + Interest Rate
Margin
8.5%
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9%
9%
8.5%
3.10%
N/A
A holder of a PLUS or SLS Loan is eligible to receive special allowance
payments during any quarter if:
•
the borrower rate is set at the maximum borrower rate; and
•
the sum of the average of the bond equivalent rates of 91-day Treasury
bills auctioned during that quarter and the applicable interest rate margin
exceeds the maximum borrower rate.
Effective July 1, 2006, this limitation on special allowance payments for PLUS
Loans made on or after January 1, 2000 was repealed.
Repayment; Deferments. Borrowers begin to repay principal on their PLUS and
SLS Loans no later than 60 days after the final disbursement, subject to deferment and
forbearance provisions. Borrowers may defer and capitalize repayment of interest
during periods of educational enrollment, unemployment and economic hardship, as
defined in the Higher Education Act. Maximum loan repayment periods and minimum
payment amounts for PLUS and SLS Loans are the same as those for Stafford Loans.
Guaranty Agencies under the FFELP
Under the FFELP, guaranty agencies guarantee loans made by eligible lending
institutions. Student loans are guaranteed as to 100% of principal and accrued interest
against death or discharge. The guarantor also pays 100% of the unpaid principal and
accrued interest on PLUS Loans, where the student on whose behalf the loan was
borrowed dies.
Guaranty agencies also guarantee lenders against default. For loans made prior to
October 1, 1993, lenders are insured against default for 100% of principal and accrued
interest. For loans disbursed from October 1, 1993 through June 30, 2006, lenders are
insured against default for 98% of principal and accrued interest. For loans disbursed
on or after July 1, 2006, lenders are insured against default for 97% of principal and
accrued interest.
The Secretary of Education reinsures guarantors for amounts paid to lenders on
loans that are discharged or defaulted. The reimbursement rate on discharged loans is
for 100% of the amount paid to the holder. The reimbursement rate for defaulted loans
decreases as a guarantor’s default rate increases. The first trigger for a lower
reinsurance rate is when the amount of defaulted loan reimbursements exceeds 5% of
the amount of all loans guaranteed by the agency in repayment status at the beginning
of the federal fiscal year. The second trigger is when the amount of defaults exceeds
9% of the loans in repayment. Guaranty agency reinsurance rates are presented in the
table below.
Claims Paid Date
Before October 1, 1993...................................................
October 1, 1993 – September 30, 1998..........................
On or after October 1, 1998 ............................................
C-14
Maximum
100%
98%
95%
5% Trigger
90%
88%
85%
9% Trigger
80%
78%
75%
After the Secretary reimburses a guarantor for a default claim, the guarantor
attempts to seek repayment of the loan from the borrower. However, the Secretary
requires that the defaulted guaranteed loans be assigned to the U.S. Department of
Education when the guarantor is not successful. A guarantor also refers defaulted
guaranteed loans to the Secretary to “offset” any federal income tax refunds or other
federal reimbursement that may be due the borrowers. Some states have similar offset
programs.
To be eligible for federal reinsurance, guaranteed loans must be made by an
eligible lender and meet the requirements of the Higher Education Act and the
regulations issued thereunder. Generally, these regulations require that lenders
determine whether the applicant is an eligible borrower attending an eligible institution,
explain to borrowers their responsibilities under the loan, ensure that the promissory
notes evidencing the loan are executed by the borrower, and disburse the loan
proceeds as required. After the loan is made, the lender must establish repayment
terms with the borrower, properly administer deferments and forbearances and credit
the borrower for payments made. If a borrower becomes delinquent in repaying a loan,
a lender must perform collection procedures that vary depending upon the length of
time a loan is delinquent. The collection procedures consist of telephone calls, demand
letters, skiptracing procedures and requesting assistance from the guarantor.
A lender may submit a default claim to the guarantor after the related student
loan has been delinquent for at least 270 days. The guarantor must review and pay the
claim within 90 days after the lender filed it. The guarantor will pay the lender interest
accrued on the loan for up to 450 days after delinquency. The guarantor must file a
reimbursement claim with the Secretary within 30 days after the guarantor paid the
lender for the default claim.
Student Loan Discharges
FFELP loans are not generally dischargeable in bankruptcy. Under the United
States Bankruptcy Code, before a student loan may be discharged, the borrower must
demonstrate that repaying it would cause the borrower or his family undue hardship.
When a FFELP borrower files for bankruptcy, collection of the loan is suspended during
the time of the proceeding. If the borrower files under the “wage earner” provisions of
the Bankruptcy Code or files a petition for discharge on the grounds of undue hardship,
then the lender transfers the loan to the guaranty agency which guaranteed that loan
and that agency then participates in the bankruptcy proceeding. When the proceeding
is complete, unless there was a finding of undue hardship, the loan is transferred back
to the lender and collection resumes.
Student loans are discharged if the borrower dies or becomes totally and
permanently disabled. A physician must certify eligibility for discharge due to disability.
This discharge is conditional for the first three years; if a borrower recovers sufficiently
during that period to earn a reasonable income, the borrower must resume repayment.
Effective January 29, 2007, discharge eligibility was extended to survivors of eligible
C-15
public servants and certain other eligible victims of the September 11, 2001 terrorist
attacks on the United States.
If a school closes while a student is enrolled, or within 90 days after the student
withdrew, loans made for that enrollment period are discharged. If a school falsely
certifies that a borrower is eligible for the loan, the loan may be discharged. Moreover,
if a school fails to make a refund to which a student is entitled, the loan is discharged to
the extent of the unpaid refund. Effective July 1, 2006, a loan is also eligible for
discharge if it is determined that the borrower’s eligibility for the loan was falsely
certified as a result of a crime of identity theft.
Rehabilitation of Defaulted Loans
The Secretary of Education is authorized to enter into agreements with the
guarantor under which the guarantor may sell defaulted loans that are eligible for
rehabilitation to an eligible lender. For a loan to be eligible for rehabilitation the
guarantor must have received reasonable and affordable payments for 12 months
(reduced to 9 payments in 10 months effective July 1, 2006), and then the borrower
may request that the loan be rehabilitated. Because monthly payments are usually
greater after rehabilitation, not all borrowers opt for rehabilitation. Upon rehabilitation, a
loan is eligible for all the benefits under the Higher Education Act for which it would
have been eligible had no default occurred and the negative credit record is expunged.
No student loan may be rehabilitated more than once.
Guarantor Funding
In addition to providing the primary guarantee on FFELP loans, guaranty
agencies are charged, under the Higher Education Act, with responsibility for
maintaining records on all loans on which they have issued a guarantee (“account
maintenance”), assisting lenders to prevent default by delinquent borrowers (“default
aversion”), post-default loan administration and collections and program awareness and
oversight. These activities are funded by revenues from the following statutorily
prescribed sources plus earnings on investments.
C-16
Source
Basis
Insurance Premium ................................................. Up to 1% of the principal amount guaranteed,
withheld from the proceeds of each loan
disbursement
Loan Processing and Origination Fee.................. 0.40% of the principal amount guaranteed, paid
by the U.S. Department of Education
Account Maintenance Fee ................................... 0.10% of the original principal amount of loans
outstanding, paid by the U.S. Department of
Education
Default Aversion Fee............................................ 1% of the outstanding amount of loans that were
reported delinquent but did not default within
300 days thereafter, paid by transfers out of
the Student Loan Reserve Fund
Collection Retention Fee...................................... 16% of the amount collected on loans on which
reinsurance has been paid (10% of the amount
collected for a defaulted loan that is purchased
by a lender for rehabilitation or consolidation),
withheld from gross receipts
The Higher Education Act requires guaranty agencies to establish two funds: a
Student Loan Reserve Fund and an Agency Operating Fund. The Student Loan
Reserve Fund contains the reinsurance payments received from the U.S. Department of
Education, Insurance Premiums and the Collection Retention Fee. The fund is federal
property and its assets may be used only to pay insurance claims and to pay Default
Aversion Fees. The Agency Operating Fund is the guarantor’s property and is not
subject to strict limitations on its use.
U.S. Department of Education Oversight
The Secretary of Education has oversight powers over guarantors. If the U.S.
Department of Education determines that a guarantor is unable to meet its insurance
obligations, the holders of loans guaranteed by that guarantor may submit claims
directly to the U.S. Department of Education. The U.S. Department of Education is
required to pay the full guarantee payments due in accordance with guarantee claim
processing standards no more stringent than those applied by the terminated guarantor.
However, the U.S. Department of Education’s obligation to pay guarantee claims
directly in this fashion is contingent upon its making the determination referred to above.
C-17
ANNEX D
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
The notes offered under the offering memorandum will be available only in bookentry form as “Global Securities.” Investors in the Global Securities may hold them
through DTC or, if applicable, Clearstream, Luxembourg or Euroclear. The Global
Securities are tradeable as home market instruments in both the European and U.S.
domestic markets. Initial settlement and all secondary trades will settle in same-day
funds.
Secondary market trading between investors holding Global Securities through
Clearstream, Luxembourg and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance with
conventional eurobond practice.
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Clearstream, Luxembourg or Euroclear
and DTC participants holding Securities will be effected on a delivery-against-payment
basis through the depositaries of Clearstream, Luxembourg and Euroclear and as
participants in DTC.
Non-U.S. holders of Global Securities will be exempt from U.S. withholding taxes,
provided that the holders meet specific requirements and deliver appropriate U.S. tax
documents to the securities clearing organizations or their participants.
Initial Settlement
All U.S. Dollar denominated Global Securities will be held in book-entry form by
DTC in the name of Cede & Co., as nominee of DTC. Investors’ interests in the U.S.
Dollar denominated Global Securities will be represented through financial institutions
acting on their behalf as direct and indirect participants in DTC. As a result,
Clearstream, Luxembourg and Euroclear will hold positions in U.S. Dollar denominated
Global Securities on behalf of their participants through their respective depositaries,
which in turn will hold positions in accounts as participants of DTC.
All non-U.S. Dollar denominated Global Securities will be held in book-entry form
by a common depositary for Clearstream, Luxembourg and Euroclear in the name of a
nominee to be selected by the common depositary. Investors’ interests in the non-U.S.
Dollar denominated Global Securities will be represented through financial institutions
acting on their behalf as direct and indirect participants in Clearstream, Luxembourg or
Euroclear. As a result, DTC will hold positions in the non-U.S. Dollar denominated
Global Securities on behalf of its participants through its depositaries, which in turn will
hold positions in accounts as participants of Clearstream, Luxembourg or Euroclear.
D-1
Investors electing to hold their Global Securities through DTC will follow the
settlement practices applicable to U.S. corporate debt obligations. Investor securities
custody accounts will be credited with their holdings against payment in same-day funds
on the settlement date.
Investors electing to hold their Global Securities through Clearstream,
Luxembourg or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security and no
“lock-up” or restricted period. Global Securities will be credited to the securities custody
accounts on the closing date against payment in same-day funds.
Secondary Market Trading
Since the purchase determines the place of delivery, it is important to establish at
the time of the trade where both the purchaser’s and the depositor’s accounts are
located to ensure that settlement can be made on the desired value date.
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to U.S. corporate debt issues
in same-day funds.
Trading between Clearstream, Luxembourg and/or Euroclear participants.
Secondary market trading between Clearstream, Luxembourg participants and/or
Euroclear participants will be settled using the procedures applicable to conventional
eurobonds in same-day funds.
Trading between DTC seller and Clearstream, Luxembourg or Euroclear
purchaser. When Global Securities are to be transferred from the account of a DTC
participant to the account of a Clearstream, Luxembourg participant or a Euroclear
participant, the purchaser will send instructions to Clearstream, Luxembourg or
Euroclear through a participant at least one business day before settlement.
Clearstream, Luxembourg or Euroclear will instruct the applicable depositary to receive
the Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and excluding the
settlement date. Payment will then be made by the respective depositary to the DTC
participant’s account against delivery of the Global Securities.
Securities. After settlement has been completed, the Global Securities will be
credited to the applicable clearing system and by the clearing system, in accordance
with its usual procedures, to the Clearstream, Luxembourg participant’s or Euroclear
participant’s account. The Global Securities credit will appear the next day (European
time) and the cash debit will be back-valued to, and the interest on the Global Securities
will accrue from, the value date, which would be the preceding day when settlement
occurred in New York. If settlement is not completed on the intended value date so that
the trade fails, the Clearstream, Luxembourg or Euroclear cash debit will be valued
instead as of the actual settlement date.
Clearstream, Luxembourg participants and Euroclear participants will need to
make available to the clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for settlement,
either from cash on hand or existing lines of credit, as they would for any settlement
D-2
occurring within Clearstream, Luxembourg or Euroclear. Under this approach, they may
take on credit exposure to Clearstream, Luxembourg or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Clearstream, Luxembourg or Euroclear has extended a line
of credit to them, participants can elect not to preposition funds and allow that credit line
to be drawn upon to finance settlement. Under this procedure, Clearstream,
Luxembourg participants or Euroclear participants purchasing Global Securities would
incur overdraft charges for one day, assuming they cleared the overdraft when the
Global Securities were credited to their accounts. However, interest on the Global
Securities would accrue from the value date. Therefore, in many cases the investment
income on the Global Securities earned during that one-day period may substantially
reduce or offset the amount of the overdraft charges, although this result will depend on
each participant’s particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Global Securities to the
applicable depositary for the benefit of Clearstream, Luxembourg participants or
Euroclear participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will settle no
differently than a trade between two DTC participants.
Trading between Clearstream, Luxembourg or Euroclear seller and DTC
purchaser. Due to time zone differences in their favor, Clearstream, Luxembourg and
Euroclear participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system, through the
respective depositary, to a DTC participant. The depositor will send instructions to
Clearstream, Luxembourg or Euroclear through a participant at least one business day
before settlement. In this case, Clearstream, Luxembourg or Euroclear will instruct the
applicable depositary to deliver the securities to the DTC participant’s account against
payment. Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date. The
payment will then be reflected in the account of the Clearstream, Luxembourg
participant or Euroclear participant the following day, and receipt of the cash proceeds
in the Clearstream, Luxembourg or Euroclear participant’s account would be backvalued to the value date, which would be the preceding day, when settlement occurred
in New York. Should the Clearstream, Luxembourg or Euroclear participant have a line
of credit with its clearing system and elect to be in debit in anticipation of receipt of the
sale proceeds in its account, the back-valuation will extinguish any overdraft charges
incurred over that one-day period. If settlement is not completed on the intended value
date so that the trade fails, receipt of the cash proceeds in the Clearstream,
Luxembourg or Euroclear participant’s account would instead be valued as of the actual
settlement date.
D-3
Finally, day traders that use Clearstream, Luxembourg or Euroclear and that
purchase Global Securities from DTC Participants for delivery to Clearstream,
Luxembourg participants or Euroclear participants should note that these trades would
automatically fail on the sale side unless affirmative action is taken. At least three
techniques should be readily available to eliminate this potential problem:
•
borrowing through Clearstream, Luxembourg or Euroclear for one day
until the purchase side of the day trade is reflected in their Clearstream,
Luxembourg or Euroclear accounts, in accordance with the clearing
system’s customary procedures;
•
borrowing the Global Securities in the U.S. from a DTC participant no later
than one day before settlement, which would give the Global Securities
sufficient time to be reflected in their Clearstream, Luxembourg or
Euroclear account in order to settle the sale side of the trade; or
•
staggering the value dates for the buy and sell sides of the trade so that
the value date for the purchase from the DTC participant is at least one
day before the value date for the sale to the Clearstream, Luxembourg
participant or Euroclear participant.
U.S. Federal Income Tax Documentation Requirements
A holder that is not a “United States person” (a “U.S. person”) within the meaning
of Section 7701(a)(30) of the Code (a “non-U.S. holder”) holding Global Securities
through Clearstream, Euroclear or DTC may be subject to U.S. withholding tax unless
such holder provides certain documentation to the trust of such holder’s Global
Securities, the paying agent or any other entity required to withhold tax (any of the
foregoing, a “U.S. withholding agent”) establishing an exemption from withholding. A
non-U.S. holder may be subject to withholding unless each U.S. withholding agent
receives:
1.
from a non-U.S. holder that is classified as a corporation for U.S. federal
income tax purposes or is an individual, and is eligible for the benefits of the portfolio
interest exemption or an exemption (or reduced rate) based on a treaty, a duly
completed and executed IRS Form W-8BEN (or any successor form);
2.
from a non-U.S. holder that is eligible for an exemption on the basis that
the holder’s income from the note is effectively connected to its U.S. trade or business,
a duly completed and executed IRS Form W-8ECI (or any successor form);
3.
from a non-U.S. holder that is classified as a partnership for U.S. federal
income tax purposes, a duly completed and executed IRS Form W-8IMY (or any
successor form) with all supporting documentation (as specified in the U.S. Treasury
Regulations) required to substantiate exemptions from withholding on behalf of its
partners; certain partnerships may enter into agreements with the IRS providing for
different documentation requirements and it is recommended that such partnerships
consult their tax advisors with respect to these certification rules;
D-4
4.
from a non-U.S. holder that is an intermediary (i.e., a person acting as a
custodian, a broker, nominee or otherwise as an agent for the beneficial owner of a
note):
(a)
if the intermediary is a “qualified intermediary” (a “qualified
intermediary”) within the meaning of section 1.1441-1(e)(5)(ii) of the U.S. Treasury
Regulations, a duly completed and executed IRS Form W-8IMY (or any successor or
substitute form):
(1)
stating the name, permanent residence address and qualified
intermediary employer identification number of the qualified intermediary and the
country under the laws of which the qualified intermediary is created,
incorporated or governed;
(2)
certifying that the qualified intermediary has provided, or will
provide, a withholding statement as required under section 1.1441-1(e)(5)(v) of
the U.S. Treasury Regulations;
(3)
certifying that, with respect to accounts it identifies on its
withholding statement, the qualified intermediary is not acting for its own account
but is acting as a qualified intermediary; and
(4)
providing any other information, certifications, or statements that
may be required by the IRS Form W-8IMY or accompanying instructions in
addition to, or in lieu of, the information and certifications described in section
1.1441-1(e)(3)(ii) or 1.1441-1(e)(5)(v) of the U.S. Treasury Regulations; or
(b)
if the intermediary is not a qualified intermediary (a “nonqualified
intermediary”), a duly completed and executed IRS Form W-8IMY (or any
successor or substitute form):
(1)
stating the name and permanent residence address of the
nonqualified intermediary and the country under the laws of which the
nonqualified intermediary is created, incorporated or governed;
(2)
account;
certifying that the nonqualified intermediary is not acting for its own
(3)
certifying that the nonqualified intermediary has provided, or will
provide, a withholding statement that is associated with the appropriate IRS
Forms W-8 and W-9 required to substantiate exemptions from withholding on
behalf of such nonqualified intermediary’s beneficial owners; and
(4)
providing any other information, certifications or statements that
may be required by the IRS Form W-8IMY or accompanying instructions in
addition to, or in lieu of, the information, certifications, and statements described
in section 1.1441-1(e)(3)(iii) or (iv) of the U.S. Treasury Regulations; or
D-5
5.
from a non-U.S. holder that is a trust, depending on whether the trust is
classified for U.S. federal income tax purposes as the beneficial owner of the note,
either an IRS Form W-8BEN or W-8IMY; any non-U.S. holder that is a trust should
consult its tax advisors to determine which of these forms it should provide.
All non-U.S. holders will be required to update the above-listed forms and any
supporting documentation in accordance with the requirements under the U.S. Treasury
Regulations. These forms generally remain in effect for a period starting on the date the
form is signed and ending on the last day of the third succeeding calendar year, unless
a change in circumstances makes any information on the form incorrect. Under certain
circumstances, an IRS Form W-8BEN, if furnished with a taxpayer identification
number, remains in effect until the status of the beneficial owner changes, or a change
in circumstances makes any information on the form incorrect.
In addition, all holders, including holders that are U.S. persons, holding Global
Securities through Clearstream, Euroclear or DTC may be subject to backup
withholding unless the holder:
(1)
provides the appropriate IRS Form W-8 (or any successor or
substitute form), duly completed and executed, if the holder is a non-U.S. holder;
(2)
provides a duly completed and executed IRS Form W-9, if the
holder is a U.S. person; or
(3)
can be treated as an “exempt recipient” within the meaning of
section 1.6049-4(c)(1)(ii) of the U.S. Treasury Regulations (e.g., a corporation or
a financial institution such as a bank).
This summary does not deal with all of the aspects of U.S. federal income tax
withholding or backup withholding that may be relevant to investors that are non-U.S.
holders. Such holders are advised to consult their own tax advisors for specific tax
advice concerning their holding and disposing of Global Securities.
D-6
PRINCIPAL OFFICES
ISSUING ENTITY
BANK OF AMERICA STUDENT LOAN TRUST
2010-1
60 Wall Street, 26th Floor
Mailstop NYC60 2606
New York, New York 10005
DEPOSITOR
BANK OF AMERICA STUDENT LOAN SECURITIZATION
CORPORATION
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28225
Mail Code: NC1-007-06-82
SPONSOR, MASTER SERVICER AND
ADMINISTRATOR
BANK OF AMERICA, NATIONAL ASSOCIATION
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28225
Mail Code: NC1-007-06-82
SUBSERVICER AND
CALCULATION AGENT
ACS EDUCATION SERVICES, INC.
One World Trade Center, Suite 2200
Long Beach, California 90831
AND
ACS ASSET MANAGEMENT GROUP, INC.
One World Trade Center, Suite 2200
Long Beach, California 90831
ELIGIBLE LENDER TRUSTEE, INDENTURE
TRUSTEE AND PAYING AGENT
DEUTSCHE BANK TRUST
COMPANY AMERICAS
60 Wall Street, 26th Floor
Mailstop NYC60 2606
New York, New York 10005
DELAWARE TRUSTEE
WILMINGTON TRUST COMPANY
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
IRISH LISTING AGENT
McCann FitzGerald Listing Services Limited
Riverside One
Sir John Rogerson’s Quay
Dublin 2
Ireland
LEGAL ADVISORS TO THE DEPOSITOR, THE TRUST, THE MASTER SERVICER,
THE SPONSOR AND THE ADMINISTRATOR
CADWALADER, WICKERSHAM & TAFT LLP
One World Financial Center
New York, New York 10281
LEGAL ADVISORS TO THE TRUST AND THE DELAWARE TRUSTEE
RICHARDS, LAYTON & FINGER. P.A.
One Rodney Square
920 North King Street
Wilmington, Delaware 19801
LEGAL ADVISORS TO THE INITIAL PURCHASERS
BINGHAM McCUTCHEN LLP
One Battery Park Plaza, 34th Floor
New York, New York 10004
INDEPENDENT PUBLIC ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
214 North Tryon Street
Charlotte, North Carolina 28255
$1,231,596,000
Bank of America Student Loan Trust 2010-1
Issuing Entity
$1,231,596,000 Floating Rate Class A Student Loan-Backed Notes
Bank of America Student Loan Securitization Corporation
Depositor
Bank of America, National Association
Sponsor, Master Servicer and Administrator
Initial Purchaser and Book-Runner
BofA Merrill Lynch
Initial Purchasers and Co-Managers
Barclays Capital
Credit Suisse
J.P. Morgan
RBS
_________________
August 3, 2010